China’s official purchasing managers index (PMI) for manufacturing in January climbed to 50.1 last month from 47.0 in December and the service sector’s PMI rocketed up to 54.4 from 41.6 over the same period, according to the National Statistics Bureau.

Ratings above 50 indicate growth. Both indexes had been showing contraction since September.

The sectors’ rebounds are attributable to domestic demand, Reuters noted, signaling the speed with which China’s resurgence of the COVID virus in the last quarter of 2022 has waned.

That quick domestic bounce signals that although the recent COVID surge felled large swaths of the population, it passed quickly, returning workers to their jobs and shoppers to stores more quickly than had been expected.

However, foreign orders for China’s manufactured goods still lag, Reuters said. The PMI sub-index for new export orders sat at 46.1.

In January, Chinese exports fell 9.9 percent below the value a year earlier.

Still, “the PMI data showed that confidence in production, operation, and the state of the market has improved significantly,” Bruce Pang, chief economist at Jones Lang Lasalle, wrote in a note.

China’s sunny January economic output was boosted by the 15-day lunar new year holiday, an occasion for giving gifts and traveling to visit family. 

Holiday spending was up 12.2 percent year on year, with people booking 74 percent more trips as they were free to travel for the first time since 2019 without COVID-related restrictions.

A more accurate measure of China’s recovery will be possible from data collected this month after the holiday has passed.

“All the other real indicators—employment, inventory, and delivery times—got worse,” chief economist Dan Wang at Hang Seng Bank China, told Reuters. “Export orders went down, so that means domestic orders must have gone way up.” 

China’s economy will grow 5.3 percent this year, the International Monetary Fund (IMF) has predicted, upping its 4.4-percent estimate made in October.

However, a portion of that growth will be a surge of post-COVID exuberance and growth will fall back to 4.5 percent in 2024, the agency said.

TREND FORECAST: We agree with the IMF: a sustained recovery in China’s economy will not take place until at least 2024 and, if the world is mired in recession this year, China may need even longer to return to a reliable rate of growth.

As Wang noted above, too many factors weigh against expansion now. The real estate industry’s crisis remains unresolved, consumer spending after the holiday week is unpredictable, and a reduced number of factory orders for export will leave households with less money to spend and less confidence in their economic future.

The world’s precarious economic outlook has quashed China’s “dual circulation” strategy of building a thriving domestic consumer economy alongside a robust manufacturing industry shipping goods to the world.

Regardless of specific developments, considering the coming global economic contraction, China is unlikely to return to the successive years of strong, continuous growth it experienced in the early part of this century. 

Also, more major countries are aligning with our Top Trend of Self-Sufficient Economies, recently exemplified by the Western alliance to secure mineral supplies that we reported in “Western Nations Collaborate to Secure Critical Mineral Supplies” in this issue. 

However, minus nuclear annihilation from the warmongers running major governments, we maintain our forecast that China will become the world’s largest and strongest economy well before mid-century. 

Follow the Money

Despite China’s recent wave of COVID infections, foreign investors have grabbed a record $21 billion worth of Chinese stocks this year through the “Connect” program, the Financial Times reported.

Connect, begun in 2014, allows foreign investors with a presence in Hong Kong equity markets to buy into stock markets on the mainland.

The CSI 300 Composite Index, China’s equivalent of the U.S. S&P 500, has gained 13 percent since 31 October.

“It’s spectacular compared to any other year since the launch of Connect,” Frank Benzimra, chief strategist for Asian equities at Société Générale, told the FT.

“Some foreign investors took a bit more time to get clarification on the strength of the economic recovery and the policy support we were going to get this year,” he said.

“The money has really come back now that the market has gotten reassurance that 2023 will be all about growth,” he added, a direction highlighted by recent data showing factory output on the rise.

On 7 February, Fitch Ratings brightened its 2023 outlook for the country’s growth to 5 percent from its previous estimate of 4.1 percent.

Allspring Global Investments is now “a little overweight” on Chinese stocks, having delved in last October when few others were buying, portfolio manager Alison Shimada said in an FT interview.

When Beijing announces the country’s growth and spending targets next month, “those numbers should begin another upcycle for China’s equity market,” Iris Pang, ING’s chief China economist, predicted to the FT.