China’s manufacturing sector falters as growth risks mount

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China’s manufacturing sector expanded at a slower pace in January as a seasonal slowdown, Covid-19 outbreaks and a slump in the housing market dragged small business activity to the weakest since the depth of the recession. pandemic.

The official manufacturing purchasing managers’ index fell to 50.1, the National Bureau of Statistics said on Sunday, just above the median estimate of 50. The non-manufacturing indicator, which measures the activity in the construction and service sectors, fell to 51.1, also slightly above. the consensus forecast. The 50 mark separates expansion from contraction.

Chinese factories often experience a lull in production in January and February as workers return home for the Lunar New Year holiday. Business has also been hurt this year by government orders for steel mills to cut production to reduce air pollution ahead of the Beijing Winter Olympics which begin on Friday.

Holiday travel to China slowly resumes as Omicron spreads

The disruptions add to the woes facing China’s economy, with home sales plummeting and consumption stagnating due to tighter restrictions aimed at containing the spread of the highly contagious variant of the omicron virus. Residents of places with recent Covid-19 outbreaks, including Beijing, Shanghai and the northern port city of Tianjin, have been told not to leave the cities unless necessary.

“Industrial activities have slowed due to weak domestic demand,” Zhiwei Zhang, chief economist at Pinpoint Asset Management Ltd., wrote in a note. “The downturn is particularly severe for small businesses.”

The small business PMI gauge fell to 46 this month, the lowest since February 2020 and taking a ninth-month contraction streak. It came as the large business indicator rose to 51.6, the highest in six months.

Caixin Manufacturing’s purchasing managers’ index, also released on Sunday, fell to 49.1, the worst in nearly two years. The private survey focuses on export-oriented small businesses relative to the official manufacturing PMI.

Manufacturers were also squeezed by higher costs, with input prices rising at the fastest pace in three months, official data showed.

“It could push up the producer price index and reduce the room for maneuver for monetary policy,” said Bruce Pang of China Renaissance Securities Hong Kong.

To spur growth, the central bank cut policy interest rates, lowered reserve requirements for lenders and pledged to open its toolbox more widely, in response to a call from key leaders to give the priority to stability.

Still, a set of early available indicators tracked by Bloomberg sent mixed signals about the state of the economy in January, with the housing market and consumer spending remaining weak and business confidence and stocks falling.

Construction activity continued to slow this month, with the sub-index falling to 55.4, according to SNB figures, suggesting sentiment remained subdued given the housing slowdown and the effect limited than public spending on infrastructure has so far. The approaching holidays and the cold winter may also have had an impact on the construction.

Expansion in the services sector also slowed sharply to 50.3%, the lowest since August, the data showed, as activity in rail and road transport, accommodation and capital market services s is contracted.

“The weak PMI indicates that the government’s policy easing measures have yet to trickle down to the real economy,” Pinpoint’s Zhang said. “We expect the government to step up policy support in the coming months, particularly through more fiscal spending.”

Other PMI data highlights:

(Updates with comments from economists.)

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