China’s factory activity shrinks for fifth month

CHINA’S manufacturing activity in February contracted for a fifth straight month, an official factory survey showed yesterday, raising the pressure on policymakers to roll out further stimulus measures as factory owners struggle for orders.

The official manufacturing purchasing managers’ index (PMI), complied by the National Bureau of Statistics (NBS), fell to 49.1 in February from 49.2 in January, below the 50-mark separating growth from contraction and in line with a median forecast of 49.1 in a Reuters poll.

Seasonal factors may have affected the figure, as the Lunar New Year fell on Feb 10 this year and saw factories shut as workers returned home for the holiday.

However, a survey by the Caixin/s&p Global released just after the official PMI showed manufacturing activity expanded steadily as both production and new orders grew faster. Taken together, the PMIS highlighted an uneven economic recovery.

“Lunar New Year definitely played an important role. Usually that’s the month when you see a PMI dip,” said Dan Wang, chief economist at Hang Seng Bank China.

Wang said the dip in the official PMI was also due to a sharp contraction of new foreign orders.

“Weakened demand from overseas seems to be a permanent, rather than temporary phenomenon” because of the economic slowdown in developed markets as well as the relocation of domestic supply chains.

New export orders have shrunk for 11 consecutive months in the NBS manufacturing PMI, while a year-long contraction in employment in the factory sector pointed to persistent strain on businesses.

China’s disappointing post-covid recovery has raised doubts about the foundations of its economic model and stoked expectations policymakers will need to consider bolder reforms to underpin longer-term growth. — Reuters