China’s Manufacturing Sector Is Showing Signs of Health — Here’s What That Means for Retailers

After four months of declining conditions, China’s manufacturing activity picked up in March, reaching its fastest pace of growth since July 2018.

Survey results released Monday reveal that the Caixin/Markit Manufacturing Purchasing Managers’ Index — which provides a snapshot of the health of China’s manufacturing sector — hit 50.8 in March, up from 49.9 in February. A Reuters poll showed that economists expected it to remain at 49.9, which would have signaled another month of contraction (a result above 50 indicates expansion).

The surprise improvement could be a sign that Chinese president Xi Jinping’s efforts to stimulate the economy are beginning to take hold, which would be good news for retailers who are worried about the potential impact of China’s slowing GDP growth along with the ongoing trade war with the U.S. Already some brands — including Prada and Tiffany & Co. — have said they’ve taken a hit from Chinese consumers’ spending less money on shopping abroad, a consequence of both the economic downturn and the administration’s crackdown on daigou, the independent shopping agents who buy goods abroad to resell in China, dodging the country’s steep taxes.

The latter, at least, is likely to continue to affect spending in popular tourist destinations: Hong Kong’s retail sales fell by 10.1 percent in February, the government said on Monday, marking the steepest decline in three and a half years. If China’s stimulus plan works, however, it should encourage more economic activity on the mainland through tax cuts, loosened regulations and infrastructure investment.

“Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-U.S. trade talks, the situation across the manufacturing sector recovered in March,” said Zhengsheng Zhong, director of macroeconomic analysis at investment research firm CEBM Group. “The employment situation improved greatly.”

The report showed that new orders reached their highest level since November, while export orders returned to expansionary territory, “showing that both domestic and external demand rebounded moderately.” Sentiment also improved to a 10-month high, as the surveyed executives — representing over 500 manufacturing companies — reported a more positive outlook for the next 12 months.

Trade negotiations between China and the U.S. are set to resume in Washington this week. In a tweet on Friday, Steven Mnuchin, the Treasury secretary, said that last week’s talks in Beijing had been “constructive.” Many leaders in the retail industry, though, have expressed concerns about the effect the trade war has already had on business, from additional import costs to relocating supply chains outside of China.

“If those trade issues persist and are allowed to deepen, that will start to have a deleterious effect on the economy, and it’ll show up everywhere, from manufacturing to consumer confidence — you name it,” American Apparel & Footwear Association EVP Steve Lamar said in a December interview with FN.

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