China’s factory activity shrank in December as Covid-19 ‘continued to take a toll on the economy’
- Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49 in December, down from 49.4 in November
- On Saturday, China’s official manufacturing PMI fell to 47 in December from 48 in November
China’s factory activity shrank at a sharper pace in December as surging coronavirus infections disrupted production and weighed on demand after Beijing largely removed antivirus curbs, a private sector survey showed on Tuesday.
The reading was the lowest since September but beat analysts’ forecast of 48.8 in a Reuters poll.
The figures provide a snapshot of the challenges faced by Chinese manufacturers who now have to contend with surging infections after the country’s abrupt policy U-turn in early December.
“Overall, the pandemic continued to take a toll on the economy in December,” said Wang Zhe, senior economist at Caixin Insight Group.
Supply contracted, total demand remained weak, overseas demand shrank, employment deteriorated, logistics was sluggish, manufacturers faced growing pressure on their profitability, and the quantity of purchases as well as inventories stayed low.
But optimism in the sector significantly improved thanks to further optimised Covid controls.”
Another turbulent 12 months for China’s economy as coronavirus weighs heavy
Weakening external demand amid slowing global growth continued to drag on orders for export-oriented producers, with the Caixin subindex of new export orders shrinking at the fastest pace since September.
Logistics snags lengthened suppliers’ delivery times for the sixth month in a row, while employment in the manufacturing sector contracted for the ninth consecutive month due to muted production levels and difficulties sourcing workers amid the virus outbreaks.
However, manufacturers were still somewhat upbeat with the subindex of future output surging to the highest since February as virus restrictions were rolled back.
Some analysts anticipate labour shortages and increased supply chain disruptions, combined with softer customer demand, may drive a further fall in production in winter months, even if mobility curbs are eased.
With Covid-zero now in the rear-view mirror, markets expect a gangbusters 2023 recovery
“With Covid-zero now in the rear-view mirror, markets expect a gangbusters 2023 recovery,” said Derek Scissors, chief economist at the China Beige Book.
“That will be right, eventually. However, with the ongoing Covid tidal wave, investment sliding to a 10-quarter low, and new orders continuing to get battered, a meaningful first quarter recovery is increasingly unrealistic.”
Chinese leaders have pledged to step up policy adjustments to cushion the impact on businesses and consumers of a surge in infections at a time when a weakening global economy is hurting exports.
The world’s second-largest economy grew by 3 per cent in the first nine months of 2022 and is expected to stay around that rate for the full year, one of its worst years in almost half a century.
Although the manufacturing PMIs suggest further weakness in industrial activity last month, we’d caution reading too much into the surveys
“The latest surveys suggest that the reopening wave delivered another blow to the economy in December. Services activity looks to have slumped. Industry was not spared, although the hit appears more modest. But a combination of recurrent virus waves, a deepening global downturn and ongoing weakness in the property sector suggest that the economy is likely to remain weak in the coming months,” said Sheana Yue, China economist at Capital Economics.
“Although the manufacturing PMIs suggest further weakness in industrial activity last month, we’d caution reading too much into the surveys. Apart from the initial outbreak in 2020, they have overstated the extent of industrial disruption from previous outbreaks. As such, we’ll reserve judgement on the extent of actual disruption until we see more direct measures of industrial activity.”
