China’s factory activity weighed down by coronavirus-induced weak demand, slips back into contraction

By The Standard and Newsday | Dec. 14, 2021 | 2 Min read

The Caixin Markit manufacturing purchasing managers’ index (PMI) fell to 49.9 in November from 50,6 the month before versus analyst expectations of 50.5 in a Reuters poll. The 50-mark separates growth from contraction on a monthly basis.

China’s factory activity fell back into contraction in November as subdued demand, shrinking employment and elevated prices weighed on manufacturers, a business survey showed on Wednesday.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.9 in November from 50,6 the month before versus analyst expectations of 50.5 in a Reuters poll. The 50-mark separates growth from contraction on a monthly basis.

The world’s second-largest economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum since the second half as it grapples with a slowing manufacturing sector, debt problems in the property market and Covid-19 outbreaks.

Analysts expect the slowdown in gross domestic product (GDP) seen in the third quarter to continue in the fourth with demand expected to remain soft given the prolonged global Covid-19 pandemic.

“Supply in the manufacturing sector recovered, while demand weakened. Relaxing constraints on the supply side, especially the easing of the power crunch, quickened the pace of production recovery,” said Wang Zhe, senior economist at Caixin Insight Group.

“But demand was relatively weak, suppressed by the Covid-19 epidemic and rising product prices.”

The findings from the private survey, which focuses more on small firms in coastal regions, stood in contrast with those in an official survey on Tuesday that showed manufacturing activity grew for the first time in three months.

“The Caixin manufacturing index published slipped under 50 last month on the back of softer domestic demand. This contrasts with the official survey,” said Sheana Yue, assistant economist at Capital Economics.

“Taken together, the surveys suggest that industrial output rebounded in November as power shortages abated. And they also point to easing factory-gate price pressures on the back of falling raw material prices.”

Production in November expanded for the first time in four months, while new orders slid back into contraction, the Caixin survey showed.

Declines in employment also deepened.

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Cost pressures are finally easing after the relentless build-up in the past few months as government efforts to curb record high raw material prices paid off.

A subindex for input prices declined to 52.3 from 65.1 the previous month, driving a slowdown in output price inflation.

Firms reported prices of steel fell at a steep pace in November, while the prices of chemicals and electronics remained high, the survey showed.

Wang from Caixin Insight Group urged policymakers to focus on supporting small companies and pay attention to problems including deteriorating employment, limited household income growth and weak purchasing power for consumer goods.

“In addition, the prices of some raw materials remained high. Enterprises are still facing high cost pressures. Policymakers should treat inflation seriously,” he added.-South China Morning Post