A textile factory on December 30, 2022 in Jiangxi province. Chinese manufacturing activity contracted in December at the fastest pace in almost 3 years.
vcg | Visual China Group | Getty Images
China’s factory activity shrank for the third straight month in December and at the fastest pace in almost three years as Covid infections swept through production lines across the country following Beijing’s abrupt lifting of anti-virus measures.
The official purchasing managers’ index (PMI) fell to 47.0 from 48.0 in November, the National Bureau of Statistics (NBS) said on Saturday. Economists had expected the PMI to come in at 48.0 in a Portal poll. The 50-point mark separates contraction from growth on a monthly basis.
The drop was the largest since the pandemic began in February 2020.
The data offered the first official snapshot of manufacturing after China lifted the world’s toughest Covid restrictions in early December. Cumulative infections likely reached 18.6 million in December, British health data company Airfinity estimated.
Analysts said rising infections could lead to temporary labor shortages and increased supply chain disruptions. Portal reported on Wednesday that Tesla plans to run a reduced production schedule at its Shanghai plant in January and extend the reduced production started this month into next year.
Weaker external demand amid rising global recession fears amid rising interest rates, inflation and the war in Ukraine could further slow China’s exports, hurting its massive manufacturing sector and hampering an economic recovery.
Although (the factory PMI) came in lower than expected, it’s actually difficult for analysts to make a meaningful forecast given the virus uncertainties over the past month.
Zhou Hao
Chief Economist, Guotai Junan International
“Most factories I know are well below what they could achieve at this time of year for next year’s orders. Many factories I spoke to are at 50%, some below 20%,” said Cameron Johnson, partner at Tidalwave Solutions, a supply chain consultancy.
“Even though China is opening up, production will still slow as the rest of the world economy slows. The factories will have workers, but they will not have orders.”
According to NBS, 56.3% of manufacturers surveyed said they were badly hit by the epidemic in December, up 15.5 percentage points from the previous month, although most also said they expected the situation to gradually improve will improve.
hopes of recovery?
“Although (the factory PMI) was lower than expected, it’s actually difficult for analysts to make a reasonable forecast given the virus uncertainties over the past month,” said Zhou Hao, chief economist at brokerage house Guotai Junan International.
“In general, we believe the worst is behind us for the Chinese economy and a strong economic recovery is on the way.”
The country’s banking and insurance regulator this week pledged to step up financial support for small and private businesses in the hospitality and tourism sectors that have been hit hard by the Covid-19 epidemic, stressing that a recovery in consumption is a will be priority.
The non-manufacturing PMI, which tracks activity in the service sector, fell to 41.6 from 46.7 in November, NBS data showed, also marking its lowest reading since February 2020.
The official composite PMI, which combines manufacturing and services, fell to 42.6 from 47.1.
“The weeks leading up to Chinese New Year will remain challenging for the service sector as people are reluctant to go out and spend more than necessary for fear of contagion,” said Mark Williams, chief Asia economist at Capital Economics.
“But the outlook should brighten around the time people return from the Chinese New Year holiday – infections will have gone down and a large proportion of people will have had Covid recently and feel they have some level of immunity to have.”