BEIJING- Orders for infrastructure materials and equipment have helped industrial output recover faster in China than most places emerging from COVID-19 lockdowns, but further expansion will be hard to attain without stronger broad-based demand and exports.
Prices of copper and steel have surged and share prices for Chinese blue chips struck five-year highs, as state-funded infrastructure projects drove up production of cement, steel and non-ferrous metals.
Railway investment, for example, soared 11.4 percent in April-June from a year earlier versus a 21 percent drop in the first quarter.
Industries also gained from pent-up demand for autos and electronics. The property sector, a pillar of growth, also showed signs of rebounding, with real estate investment expanding and sales quickening.
China’s factory-gate prices, still in deflation territory this year, may have turned positive on a monthly basis in June, said Yating Xu, senior economist at IHS Markit, in a sign of recovering demand for manufactured goods.
The optimism also led investment bank ING to forecast no more policy interest rate cuts from the central bank for the rest of the year.
“We started to return to thin profit in May and became a bit better in June,” said an official at a state-owned steel mill in central China, declining to be named due to company policy.
“Our demand mainly come from infrastructure so far this year, especially for steel rebar and medium plates,” he said. Steel rebars are mostly used in construction, and medium steel plates in ships and excavators.
Underpinned by robust infrastructure demand from China, the Baltic dry index, which tracks rates for ships ferrying dry bulk commodities and reflects rates for capesize, surged about 257 percent in June from a low struck in May due to the freeze in global trade as a result of the lockdowns.
The rosy outlook stands in stark contrast to the dismal industrial landscapes of other economies still fighting COVID-19. Factory output plunged further in May from a year earlier in Japan, South Korea and the United States. Euro zone manufacturing output fell by a record 28 percent in April. — Reuters
