China Manufacturing on Recovery Path

Pandemic pressures ease, world's No. 2 economy regains vigor

China's factory activity in January rose for the first time four months, hinting at a rebound in the world's No. 2 economy after Beijing ditched a yearslong zero-COVID policy that dented production and supply chains.

The official manufacturing purchasing managers' index (PMI) came in at 50.1 this month, the National Bureau of Statistics reported on Tuesday, ending a string of contractions and up from 47.0 in December in what was the sharpest fall since early 2020, at the start of the pandemic.

The 50-point mark separates contraction from expansion.

The upbeat data came as the International Monetary Fund revised its growth forecast for China's economy to 5.2% this year from an earlier 4.4%.

Production could still be hampered by mass infections -- including among factory employees -- that spiked after China ditched tough virus curbs in December. But the data on Tuesday is among the first signs that China's economy is regaining its vigor after posting a 3% expansion in 2022, one of the country's weakest growth rates in decades.

Also Tuesday, the service sector nonmanufacturing PMI jumped to 54.4 from 41.6 in December after big Chinese cities announced they had reached their virus caseload peak in mid-January, spurring millions to travel for the weeklong Lunar New Year break that ended Friday.

"The official PMIs add to evidence of a rapid rebound in economic activity this month as disruption from the reopening wave faded," Sheana Yue at Capital Economics said in a note. "More shoppers returned to the street, boosting services activity while easing labor shortages supported industry.

"Supply chain problems appear to be easing too."

Spending during the holiday, when many Chinese travel to see relatives, jumped 30% from a year earlier to 375.8 billion yuan ($56 billion), according to the Ministry of Culture and Tourism. The number of domestic trips increased 23% to 308 million, the ministry said.

The numbers were below 2019's pre-pandemic levels.

China's government has said it will promote consumption as a key driver of an economy facing headwinds from slumping export demand.

"Consumer behavior has changed significantly after the dropping of COVID restrictions, but there are still signs of lingering caution," Ernan Cui, China consumer analyst at Gavekal Dragonomics, said in a note. "The recovery ... is likely to be a two-stage process. At first, spending will be driven by higher-income households and white-collar workers. ... The less well-off will need to see their incomes improve to justify higher levels of spending."

China's recovery is "not without caveat," Citi Research cautioned. "Supply side is slightly lagging because of the holiday. Services employment ... is still soft. The next few months remain a key window to watch."