Chinese factory output falls amid fresh Covid concerns
RENEWED Covid outbreaks triggered a surprise setback in Chinese factories in July as the recovery was stalled by Xi Jinping’s zero tolerance stance and weakening global demand.
The manufacturing purchasing managers’ index slipped back into contraction territory as the Chinese economy is hampered by the on-off restrictions of the zero Covid policy.
Beijing said the official manufacturing PMI unexpectedly fell from 50.2 in June to 49 with any score below 50 signalling a contraction. It was the fourth monthly contraction recorded this year by China’s statisticians.
Activity in factories had bounced back from Covid restrictions earlier this year but measures to curb the virus have returned in many cities, including Tianjin where Volkswagen and Boeing have plants.
Goldman Sachs economist Yuting Yang said the PMI was dragged down by a “downturn in energy-intensive industries, such as ferrous metals, petrol and coking coal”. She said: “Manufacturing activity decelerated in July on weak demand and production cuts in energyintensive industries.” However, the non-manufacturing PMI slowed from 54.7 to 53.8 in July, holding up more strongly than economists expected.
Mr Xi has stuck by the zero Covid stance despite the economic damage caused by the policy as the West learns to live with the virus. The policy could have spillover effects to the rest of the global economy as it worsens supply chain problems.
After China escaped the worst of the initial economic damage done by Covid, it has struggled to control the fasterspreading omicron variant.
Beijing has indicated it is likely to miss its official GDP growth target of 5.5pc after placing draconian restrictions on major cities this year.
Growth slowed to just 0.4pc year-onyear in the second quarter of 2022, its worst reading since Covid first struck.
Mark Williams, the chief Asia economist at Capital Economics, said: “Fullyear growth on the official figures is likely to climb towards 4pc, all going well with Covid.
“But in reality, full-year growth is likely to be substantially weaker.”