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09:37 - Source: CNN
Hong Kong CNN  — 

Economic activity in China has expanded for the first time in four months as disruptions caused by the abrupt end of its zero-Covid policy appears to be fading.

The official purchasing managers’ index (PMI) for manufacturing, which measures activity at factories, jumped to 50.1 in January from 47 in December, according to the National Bureau of Statistics.

It’s the first time the gauge has crossed the 50-point mark since September. A reading above 50 indicates expansion, while anything below that level shows contraction.

The official non-manufacturing PMI, which tracks activity in the services and construction sectors, surged to 54.4 in January from 41.6 in December, also marking its first expansion in four months.

This is a sign that China’s Covid “exit wave” is coming to an end, said analysts from Nomura in a research report.

“Looking to February, we expect both the manufacturing and non-manufacturing PMIs to rise further, as more people adapt to living with Covid,” they said Tuesday, adding that manufacturing activity will also rebound further following the Lunar New Year holiday.

Last week, the Chinese Center for Disease Control and Prevention said in a report that China’s current wave of Covid outbreak was “nearing an end.”

The official PMI survey mainly covers larger businesses and state-owned companies. The Caixin PMI survey, which will be released later this week, is focused on small and medium-sized enterprises.

Tourists enjoy rime-covered trees along the Songhua River on January 30, 2023 in China's Jilin province.

China scrapped most of its pandemic restrictions in early December, effectively ending its three-year-long zero-Covid policy. But the abrupt change in policy caught the public off guard, leading to the rapid spread of infections.

The Covid surge hit factories and consumer markets, as people were driven indoors and factories were forced to shut due to fewer people working. But it appears the chaos might be over.

“The official PMIs add to evidence of a rapid rebound in economic activity this month as disruption from the reopening wave faded,” said Sheana Yue, China economist at Capital Economics.

All components of the indices improved this month.

The most significant rebound happened in the services sector, with that measure climbing to 54 in January from a record low of 39.4 in December, when a huge rise in Covid infections led to people largely staying home.

“The strong rebound was mostly driven by the release of pent-up demand in in-person services, including tourism, hospitality and entertainment, which were hit hardest by the pandemic over the past three years,” Nomura analysts said. “People flocked to scenic spots, watched firework shows and crowded into restaurants and hotels.”

A total of 308 million trips were made by travelers within China during the Lunar New Year holiday, up 23% from the same period last year, according to data released by the culture and tourism ministry last week. It was also close to the pre-pandemic level, equivalent to 89% of the 2019 figure.

“With zero-COVID in the rear-view mirror, the recovery should remain robust in the near-term,” Yue said.