China's June factory activity likely expanded for first time in 4 months: Reuters poll

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Employees work on the production line during an organised media tour to a factory of Beijing Benz Automotive Co (BBAC), a joint venture by BAIC Motor and Mercedes-Benz, in Beijing, China February 17, 2022. REUTERS/Florence Lo/File Photo

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BEIJING, June 29 (Reuters) - China's factory activity likely expanded in June for the first time in four months, driven by a faster recovery in production and an easing of supply chain snags as manufacturing hubs emerged from lockdowns, a Reuters poll showed on Wednesday.

The official manufacturing Purchasing Manager's Index (PMI) is expected to rise to 50.5 in June - the highest in a year - from 49.6 the previous month, returning to expansionary territory for the first time since February, according to the median forecast of 30 economists polled by Reuters.

A reading above 50 indicates expansion from the previous month, below 50 means contraction.

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An expansion of factory activity after three months of contraction adds to evidence that the world's second-largest economy is charting a path out of the supply-side shocks from COVID-19 lockdowns and could ease downward pressure on the yuan , which has shed 5% against the U.S. dollar this year.

The key drivers would be an accelerated resumption of production amid easing COVID curbs and possibly higher demand for upstream production with stronger boost to infrastructure, analysts at Morgan Stanley said in a note.

The commercial hub of Shanghai, located at the heart of manufacturing in the Yangtze River Delta, ended a city-wide lockdown on June 1, allowing more small factories in the region to resume production.

Though activity in China is gaining momentum from the lengthy COVID lockdown in April and May, headwinds, including a still subdued property market, soft consumer spending and fear of any recurring waves of infections, persist.

In order to stabilise growth and rein in unemployment in a politically sensitive year, the State Council recently announced a broad package of economic support measures. President Xi Jinping is set to secure his third term in the 20th Party Congress this fall.

Analysts say the official GDP target of around 5.5% for this year will be hard to achieve without abandoning the zero-COVID strategy.

Premier Li Keqiang vowed to achieve reasonable economic growth in the second quarter, although some private sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter's 4.8% growth.

The official manufacturing PMI, which largely focuses on big and state-owned firms, and its sibling survey for the services sector, will be released on Thursday.

The private sector Caixin manufacturing PMI, which focuses more on small firms and coastal regions, will be published on Friday. Analysts expect a headline reading of 50.1 for that, up from 48.1 for the previous month.

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Reporting by Ella Cao, Stella Qiu and Ryan Woo; Polling by Anant Chandak; Editing by Muralikumar Anantharaman

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