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China’s January factory activity returns to growth as economists cheer its reopening

A textile factory on December 30, 2022 in Jiangxi Province. Chinese manufacturing activity contracted at its sharpest pace in nearly 3 years in December.
Vcg | Visual China Group | Getty Images

China’s factory activity bounced back in January and expanded for the first time since September, data from the national bureau of statistics showed.

The official manufacturing purchasing managers’ index (PMI) rose to 50.1 in January, above the 50-point mark that separates growth from contraction. That’s compared to December’s reading of 47.

Non-manufacturing PMI rose to 54.4, the highest level since June 2022. It was a sharp improvement from a reading of 41.6 from the previous month, backed by a strong recovery in services and construction activities.

Despite better-than-expected readings, an “impressive rebound” is yet to be seen, Citi economists said in a note.

“This set of PMI data confirmed that earlier reopening and peak infections have set the stage for a broad-based economic recovery,” Citi’s chief China economist Xiangrong Yu and his team wrote in a note.

“The rebound so far is not without caveat, with large corporates outperforming, supply side lagging due to [Chinese New Year] holiday, and services employment yet to show an impressive rebound,” they wrote.

Citi added that the latest readings add upside risks to its forecast for China’s gross domestic product for 2023 as it expects further supportive fiscal policies from the government in the first half of the year.

Goutai Junan International’s chief economist Hao Zhou said the latest release of economic data showed a fast reopening has brought a boost to the economy, especially the services sector.

“The darkest hour is gone, and the market is ready to embrace a fast economic recovery in China, which bodes well for the China-related assets,” he said in a note.

Zhou said China’s GDP for the second quarter of 2023 will be “under the spotlight.” He predicted that the reading may be in the 8% range due to an already low base seen in the same period a year ago.

— CNBC’s Evelyn Cheng contributed to this report.

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