China’s factory activity shrinks as Covid-19 curbs ‘take toll on the economy’

China’s factory activity shrank last month as widespread coronavirus curbs disrupted manufacturers’ output, weighing on employment and economic growth in the fourth quarter, a private sector survey showed yesterday.

The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose slightly to 49.4 last month from 49.2 in the previous month and beat expectations of a Reuters poll of 48.9.

But the reading marks the fourth monthly contraction in a row, as the 50-point index mark separates growth from contraction on a monthly basis.

The figure followed downbeat data in an official survey on Wednesday with manufacturing activity falling to a seven-month low last month, hit by prolonged lockdowns and curbs in several places, including Beijing and Guangzhou.

“Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure,” said Wang Zhe, senior economist at Caixin Insight Group.

“As the measure for suppliers’ delivery times is negatively correlated to the PMI, the fall in the measure partially offset the drop in the PMI, leading the decline in

November manufacturing activity to be underestimated.”

Analysts see mounting downside risks to China’s economic growth in the fourth quarter despite a flurry of policies to shore up activity, including reserve requirement ratio cuts and support to rescue the sluggish property sector.

Subindices of factory output, employment and new export orders all fell at a sharper pace last month from the month before, the Caixin survey showed.

Greater difficulties were seen in employment in the manufacturing sector, with the rate of job shedding hitting the quickest pace since February 2020, as some workers were unable to return to work because of Covid-19 curbs while production constraints weighed on staffing levels.

“The market is in urgent need of policies to promote employment and stabilise domestic demand,” Wang said, suggesting policymakers coordinate fiscal and monetary policy to boost domestic demand and income.