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April 2, 2020

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Smaller firms lagging in recovery

China’s manufacturing sector saw a limited rebound in March, according to a private survey released yesterday.

The Markit/Caixin Purchasing Managers’ Index of small- and medium-sized enterprises and export-oriented firms jumped to 50.1 in March from 40.3 in February.

The reading is just above the threshold of 50 which divides growth from contraction. “The reading of 50.1 means that improvements achieved in the manufacturing sector in March are still limited,” said Zhong Zhengsheng, chairman and chief economist at CEBM Group.

Only 76 percent of small- and medium-sized enterprises had resumed production as of Saturday, China’s Ministry of Industry and Information Technology said on Monday.

The official manufacturing PMI, which polls a large proportion of big businesses and state-owned companies, was 52 in March, up from 35.7 in February.

“The difference in the official and Caixin/Markit manufacturing PMI readings for March suggests that smaller enterprises, and the private sector in general, are suffering more than larger firms and state-owned enterprises,” Martin Rasmussen, China economist at Capital Economist said in a research note yesterday.

Nomura echoed that view, saying: “The rebound in the Caixin manufacturing PMI in March was also less significant than the improvement in the official manufacturing PMI, meaning business resumption among SMEs, which are more severely afflicted by the COVID-19 pandemic, has been much weaker and slower.”

At a State Council meeting on Tuesday, Premier Li Keqiang called for a targeted liquidity injection for small- and medium-sized banks via targeted reserve requirement ratio cuts to offer loans to SMEs, as well as an additional 1 trillion yuan (US$141 billion) quota for relending and rediscounting.

The moves are aimed at providing more funding to SMEs, agricultural businesses, and industries severely hit by COVID-19 and slumping exports.

The improvement in the Caixin PMI was broadly based across all its sub-indices.

But most sub-indices still remained below the threshold of 50.

The exception was the output sub-index which surged to 50.6 from 28.6 in February.

The new orders and the new export order sub-indices rose to 47.7 and 46.4, respectively, in March from 34.9 and 36.4 in February.

“The Caixin manufacturing PMI will likely dip to below 50 in April on slumping external demand and a potential second wave of infections within China,” Nomura said.


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