PMI expansion slower due to supply shortages, but new orders edge up on '618'

China's manufacturing activities maintained a solid expansion in June despite the small-scale resurgence of local COVID-19 cases, highlighting the resilience of the country's economic recovery, officials and experts said on Wednesday.

The official purchasing managers index for China's manufacturing sector came in at 50.9 in June, little changed from 51 in May, indicating the sector has expanded steadily, the National Bureau of Statistics said on Wednesday.

The reading stayed above the mark of 50, which separates expansion from contraction, as new orders increased faster while production remained buoyant, albeit rising at a slower speed due to supply shortages, the bureau said.

The sub-index of new orders edged up to 51.5 in June from 51.3 in May as domestic demand recovered while mid-year promotion campaigns like the June 18 online shopping carnival－"618"－boosted sales of consumer goods, helping offset the contraction in new export orders, according to the NBS.

The pressure of surging costs eased in June as the sub-index of raw material prices substantially declined from 72.8 in May to 61.2 in June, though still well in the expansion mode.

"With the policies to ensure supply and stabilize prices having taken effect, the rapid rise in prices across the manufacturing sector has started to be curbed," said Zhao Qinghe, a senior NBS statistician.

Zhao also said that the composite PMI, which covers the manufacturing and non-manufacturing sectors, slipped to 52.9 from 54.2 in May, indicating a continued but slower expansion in overall economic activities.

"Despite the sequential moderation in June from May, we believe PMI prints were still solid in the second quarter, pointing to the resilience of China's economy amid the recent, small-scale resurgence of COVID-19 in Guangdong province," said Lu Ting, Nomura's chief China economist.

Underpinned by recovering private domestic demand, China's economy will post strong growth this year, with a projected full-year economic growth of 8.5 percent, the World Bank said in its China Economic Update on Tuesday.

Cai Zhibing, an associate professor of economics at the National Academy of Governance, said China's vibrant growth in the first half of the year has proven the resilience of the Chinese economy, which is closely linked with the strong leadership of the Communist Party of China.

The Party has formed a raft of strategies under the dual-circulation development paradigm, including strengthening technological capability and expanding domestic demand, which have helped ensure China's economic security in face of uncertainties, Cai said.

Though policy efforts to tackle rising cost pressure and boost domestic demand have started to pay off, more measures are needed to promote a full-blown and balanced economic recovery, officials and experts said.

Han Wenxiu, an official with the Central Committee for Financial and Economic Affairs, said imbalances in recovery remain despite growing internal momentum, with sectors like transportation and tourism lagging and small and medium-sized enterprises suffering.

The government will, therefore, maintain the continuity of macro policy, make policy support more targeted and offer more aid to SMEs.

Also, more efforts will be made to boost the recovery in consumption and strengthen the employment-first policy, he said at a news conference on Monday.

The NBS survey showed that employment continued to decrease in June across manufacturing and non-manufacturing sectors, while small manufacturers saw their activity remain in contraction, albeit recording improvements compared with May.

Wen Bin, chief researcher at China Minsheng Bank, said more policy efforts are needed to alleviate the pressure brought by rising commodity prices, including enhanced adjustments to supply and demand and to help affected businesses via multi-pronged approaches.

In face of uncertainties surrounding external demand, efforts should continue in expanding domestic demand, especially services consumption and investment, to consolidate the internal drivers of the economy, Wen said.