China’s manufacturing weakens for first time since Covid-19 eruption – .

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China’s manufacturing weakens for first time since Covid-19 eruption – .



BEIJING – China’s manufacturing activity contracted in September, ending an 18-month expansion that fueled the country’s recovery from the pandemic, with power cuts at hubs threatening further disruption.

China’s manufacturing purchasing managers index fell to 49.6 in September, the Beijing National Bureau of Statistics said Thursday. This marks the first dip in the gauge below the 50 mark that separates an expansion in activity from a contraction since February 2020, when the metropolis of Wuhan and the surrounding province of Hubei were closed to contain the spreading virus. fast.

Economists polled by the Wall Street Journal expected the official PMI to remain unchanged from the August 50.1 reading. Instead, Thursday’s drop in PMI was the latest worrying sign for the world’s second-largest economy. China’s strong pandemic recovery has been hampered by regional epidemics, a global semiconductor shortage, port closures and supply chain disruptions, a growing regulatory campaign against many industries. economy and soaring commodity prices.
More recently, concerns about power outages and the slowdown in the housing market have added to the list of worries.

Zhao Qinghe, an economist with China’s Bureau of Statistics, said Thursday that the fall in the official PMI below the 50 threshold in September was mainly due to weak sentiment among companies in energy-intensive industries, such as petroleum, coal, rubber and plastic industries.

The manufacturing sector has been one of the engines of China’s strong rebound from the pandemic, largely thanks to strong global demand for products made in China as the rest of the world was ravaged by Covid-19. China was the only major economy to register growth last year.

Below the overall PMI figure, the sub-indices measuring production, total new orders, new export orders and hiring all slipped below the 50 line in September as supply and demand in China’s manufacturing sector slowed, the statistics bureau said.

Separately on Thursday, a private measure of manufacturing activity that focuses more on small factories showed some improvement in overall activity but signaled continued weakness in external demand and production.

This index, the Caixin China purchasing managers index, rose to 50 in September, from 49.2 the previous month, suggesting that activity in the sector neither rose nor contracted in September, after being pushed into contraction territory in August by a wave of coronavirus infections. . The Caixin Index is compiled by Caixin Media Co. and data research firm IHS Markit Ltd.

In recent days, economists have worried about the blackouts that have swept across many Chinese provinces, as coal prices rise and the government ramps up efforts to reduce energy use and carbon emissions.

A factory in Jiangsu province, an economic powerhouse where the use of electricity has been strictly limited in some localities.

Photo:
Alex Plavevski/Shutterstock

More than half of Chinese provinces failed to meet central government energy consumption targets in the first half of the year, according to the Chinese state economic planner. Many localities in these provinces, including the economic powers of Jiangsu, Zhejiang and Guangdong provinces, have strictly limited power consumption for businesses and factories.

Coupled with soaring coal prices, power outages in many areas are expected to persist until the end of the year as local governments aim to meet emissions targets, the economist at ANZ Betty Wang. Meanwhile, the global focus on China’s energy policy in the run-up to a closely watched UN climate change summit in a month’s time will likely keep the pressure on Chinese policymakers to maintain their position. position, she said.

In a sense, the rush to harness energy and production is the result of China’s surprisingly resilient manufacturing and export boom over the past year, which has resulted in increased consumption of energy and undermined the ability of local governments to meet Beijing’s emissions control targets.

If it lasts until the end of the year, the electricity crisis and the resulting production cuts in China’s manufacturing centers could lower the country’s gross domestic product by about 1 percentage point in the year. fourth quarter, according to Morgan Stanley economists.

“Fourth-quarter economic growth is likely to slow further without a change in government policies,” said Zhiwei Zhang, economist at Shenzhen-based Pinpoint Asset Management.

In addition to the power shortage, the market began to take into account the growing risks to the Chinese economy after China Evergrande Group,

one of the largest and most indebted real estate developers in the country, has not paid interest on its bonds, raising questions about its financial stability.

Last week, economists from several financial institutions, including Nomura, China International Capital Corp.

and S&P Global Ratings, cut their forecasts for Chinese economic growth this year, citing the electricity crisis and the slowdown in real estate. Citigroup also lowered its forecast for Chinese economic growth next year this week, after lowering its growth forecast for 2021.

September marks the third consecutive month of weakening economic figures. After the recovery peaked in the first half of the year, the Chinese economy began to show warning signs in July and August. Thursday’s PMI figure now suggests that September’s figures may continue the downtrend, although a positive signal may come from the Chinese services sector. The industry was derailed last month by an outbreak of the Covid-19 Delta variant, which has since been brought under control.

China’s official non-manufacturing PMI, which includes the services and construction sectors, rebounded to 53.2 in September, from 47.5 in August, according to data released Thursday by China’s Bureau of Statistics. The sub-index following the service sector improved to 52.4 from 45.2 the previous month, while the sub-index measuring construction activity weakened to 57.5 from 60, 5, according to the statistics office.

While PMI data showed some recovery in the service sector last month, the slowdown in construction activity has served as a reminder of the difficult situation in the Chinese real estate market, which is suffering from lower home sales and downturns. under construction.

“The power shortage and the housing slowdown have amplified market concerns about China’s near-term growth prospects,” said ANZ’s Ms. Wang.

Write to Jonathan Cheng at [email protected]

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