Unexpected contraction in China factory activity
CHINA’S factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns in June, as fresh virus flare-ups and a darkening global outlook weighed on demand, a survey showed yesterday.
The official manufacturing purchasing managers’ index fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics said, below the 50-point mark that separates contraction from growth and the lowest in three months.
“The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said on the bureau’s website.
Continued contraction in the energy-intensive industries, such as petrol, coking coal and ferrous metals, contributed most to pulling down the July manufacturing PMI, he said.
Sub-indexes for output and new orders fell by 3 points and about 2 points in July, respectively, while the employment sub-index edged down by 0.1 point.
Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Q3 growth may face greater challenges than expected, as recovery is slow and fragile.”
The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.
Boosted by pro-growth policies, the service sector continued to recover in July, Zhao noted. The sub-index for business activities in the sector was 52.8, staying in the expansion range.
Among the 21 sectors surveyed, 16 industries were in expansion territory, with the sub-indexes for air transportation, accommodation and catering all standing above 60, a relatively high level.
“With the suppressed consumer demand being unleashed, these sectors rebounded at an accelerated pace,” Zhao pointed out.
The confidence of nonmanufacturing firms has strengthened, with the sub-index tracking operation activity expectations of this sector standing at 58.8, staying in the expansion territory for the second month in a row.
Expansion of the construction sector accelerated in July, with the sub-index for business activities in the sector standing at 59.2, increasing 2.6 percentage points from the previous month.
After a rebound in June, the recovery in the world’s second-biggest economy has faltered as COVID flare-ups led to tightening curbs on activity in some cities, while the once mighty property market lurches from crisis to crisis.
Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.
Meanwhile, the southern megacity of Shenzhen has vowed to “mobilize all resources” to curb a slowly-spreading COVID outbreak, ordering strict implementation of testing and temperature checks, and lockdowns for COVID-hit buildings.
The port city of Tianjin, home to factories linked to Boeing and Volkswagen and other areas tightened curbs in July to fight new outbreaks.
According to World Economics, the lockdown measures had some impact on 41 percent of Chinese companies in July, though its index of manufacturing business confidence rose significantly from 50.2 in June to 51.7 in July.