TO: (Yicai Global) July 1 -- China’s factory activity was the most it has been in a year last month, returning to positive territory after three straight months of contraction as production and demand bounce back following a resurgence of Covid-19 in the country, according to a widely watched private survey.

The Caixin purchasing managers’ index for manufacturing was 51.7 in June, a gain of 3.6 percentage points from May, market research firm Markit reported today.

The data is in line with the official manufacturing PMI published by the National Bureau of Statistics yesterday. That figure came in at 50.2 for last month, up 0.6 percentage point from May, and above the benchmark of 50. A reading above 50 indicates expansion and one below reflects contraction.

Supply surged in June and the production sub-index returned to its highest level since December 2020. Many factories said operations have returned to normal as the flare-ups wane.

Demand also improved but is still being held back by the ongoing fallout from the pandemic. The new orders sub-index edged into positive territory and the new export orders sub-index climbed above 50 for the first time since August last year. Although customers showed greater willingness to spend, the overall market was lackluster, those businesses polled said.

The main reason for the limited recovery in demand is the weak employment market which has dealt a blow to people’s incomes and expectations, said Wang Zhe, senior economist at Caixin Insight Group. More policy relief is needed for those employees affected by the pandemic, workers in flexible employment and low-income groups.

Manufacturing jobs declined for the third straight month in June, although not by much. Firms said they are not rehiring if employees voluntarily leave.

Manufacturers cut prices for the second straight month to boost sales amid intense competition, despite soaring raw material prices and transportation costs.

Business optimism was the highest it has been in the past four months, with those companies surveyed saying that they are generally more confident about prospects over the next 12 months.

Editor: Kim Taylor