China’s Consumers Lead Recovery in April

A similar gauge of activity in manufacturing fell unexpectedly below the 50 line in April, falling to 49.2 from the previous month’s 51.9 reading, suggesting activity in the sector shrank over the past month.

The figures point to a decent if lopsided recovery in the world’s second-largest economy, which grew just 3% last year as repeated Covid-19 lockdowns kept people indoors, shuttered factories and businesses and smothered economic growth.

A rebound in China is essential to support global economic growth this year, as the U.S. and Europe lose steam amid rising interest rates, stubborn inflation and anxiety over pockets of instability in the banking system.

The continued strong PMI readings on the nonmanufacturing front reflect the one-time dividend from Beijing’s decision late last year to ditch its stringent Covid-19 controls, which had held back services spending for roughly three years.

At the same time, the manufacturing sector, which served as the main engine of China’s economy during the three years of Covid restrictions, is cooling at an unexpectedly fast rate, Sunday’s data showed, underlining how China can’t rely on exports to propel its economy right now as rising interest rates squeeze growth in the U.S. and Europe.

Jeff Bowman, chief executive of Cocona Inc., said revenue at his firm was down 25% in the first quarter relative to the company’s projections. Cocona, based in Boulder, Colo., makes temperature-regulating materials used in apparel and bedding, and Mr. Bowman said orders are suffering because clothing makers in China that purchase his products are themselves facing sinking demand from retailers in the U.S. whose inventories are stuffed with unsold goods.

“They are just not buying new product yet. That works its way down the supply chain,” he said.

With China’s export and manufacturing sectors projected to struggle this year, and with investment weak thanks to a real-estate sector battered by heavy debts and months of falling prices, consumption has become increasingly important as a growth driver, economists say, pointing to many households’ piled-up savings and pent-up demand following the easing of Covid-19 controls.

The economy has already been reaping the benefits of consumers flocking back to restaurants, stores and domestic holiday destinations. Strong consumer spending was one of the reasons China was able to notch a 4.5% year-over-year expansion in gross domestic product in the first three months of the year.

That momentum looks set to extend into the summer as the weather warms. In one strong sign of consumer demand, bookings for scenic spots, air tickets and hotel reservations for the five-day Labor Day holiday starting April 29 all surpassed the levels recorded in the same period in 2019, the last year before the pandemic, and are more than 10 times greater than last year, according to online Chinese travel agency Fliggy.

The government has set a growth target of around 5% for the year as a whole, which most economists expect it can handily beat.

What is less clear, say economists, is how long the burst of consumer spending will last and whether it will fire up a broader recovery that revives hiring and business investment.

Serena Zhou,

“We need to see whether revenge spending will turn into some real demand, to drive growth rebound over the long term,” she said, referring to pent-up demand for services consumption.

The Politburo, the Communist Party’s top policy-making body, in a statement issued through state media Friday, celebrated the strength of the recovery so far, but acknowledged a durable revival isn’t yet assured.

“Demand is still insufficient,” the Politburo said, according to a report by the state-run Xinhua News Agency. “Many difficulties and challenges still need to be overcome to promote high-quality development.”

—Grace Zhu contributed to this article.

Write to Jason Douglas at [email protected]