China’s factory activity is shrinking for the first time since February 2020

China’s factory activity is shrinking for the first time since February 2020


Official data on Thursday showed that Chinese factory activity declined in September for the first time since the peak of the first coronavirus outbreak in February 2020 as it faced waves of power outages and fears for the property sector.

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Official data on Thursday showed that Chinese factory activity declined in September for the first time since the peak of the first coronavirus outbreak in February 2020 as it faced waves of power outages and fears for the property sector.

The purchasing managers’ index (PMI) – a key indicator of manufacturing activity in the world’s second largest economy – fell from 50.1 in August to 49.6, the National Bureau of Statistics said.

Any number below the 50-point mark represents a contraction, while above it indicates growth.

It’s the first time China’s PMI has shrunk since Covid spread across the country, forcing the government to impose bans that resulted in factories being closed and the world’s second largest economy beaten.

But now authorities are struggling to cope with an energy crisis caused by scarce coal supplies and sky-high prices that has resulted in factory closures and power outages in at least 17 provinces in the past few months.

The growing electricity crisis, exacerbated by local government restrictions on factories to reduce energy consumption, has led some large banks to lower their annual growth forecast for China, while also raising concerns about the supply chain impact for global companies like Ple and Tesla there.

Senior NBS statistician Zhao Qinghe said the PMI has fallen below the threshold due to “the relatively low prosperity of energy-intensive industries”.

Julian Evans-Pritchard of Cital Economics warned: “The industry is likely to continue to weaken as real estate construction is in the early stages of a structural slowdown, electricity rationing could continue for some time, and exports are likely to decline as global consumer behavior normalizes . “

The number was slightly below the forecast by Bloomberg analysts, who were expecting a slight rebound after successfully containing the recent coronavirus outbreaks.

While China’s economy has largely recovered from the first blow of the pandemic, multiple outbreaks hit domestic tourism and manufacturing in the summer as new containment measures and lockdowns were put in place in parts of the country.

As a result, China’s non-manufacturing PMI – which measures activity in the construction and services sectors – contracted for the first time since the pandemic began in August, but bounced back to growth in September.

Default fears for Chinese real estate giant Evergrande – stuck in a $ 300 billion debt swamp – have also hurt consumer confidence as the government tries to prevent the financial risk from spilling over to the rest of the real estate sector.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the weak PMI was serving as an “alarm” to the government.

“Economic growth in the fourth quarter is likely to continue to slow without a change in government policy, and the pace of slowdown could accelerate,” he said.

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