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A Sign Of Economic Issues In The Future Delivered By China's Falling Factory Activity


10/31/2021


A Sign Of Economic Issues In The Future Delivered By China's Falling Factory Activity
Stubbornly high raw material prices and weak domestic demand resulted in China's manufacturing activity shrinking more than predicted in October, indicating further economic uncertainty in the fourth quarter of 2021.
 
According to statistics released by the National Bureau of Statistics (NBS) on Sunday, the official manufacturing Purchasing Manager's Index (PMI) was 49.2 in October, down from 49.6 in September.
 
Growth and contraction are separated at the 50-point threshold. Analysts had predicted a score of 49.7.
 
Due to environmental restrictions and electricity rationing, China's massive industrial sector has slowed this year, with production in September expanding at its slowest pace since March 2020 in September.
 
A subindex for output fell to 48.4 in October from 49.5 in September, in keeping with the lower headline PMI. A subindex for new orders fell for the third month in a row, at 48.8.
 
"About one-third of the surveyed companies listed insufficient demand as their biggest difficulty, indicating inadequate demand had restricted their production," said Zhang Liqun, an analyst at the China Logistics Information Center.
 
Worse still, a subindex for production prices surged to 61.1, the highest level since the statistics office began releasing the measure in 2016, implying growing inflationary pressures while wider economic growth slows.
 
"The production index has dropped to the lowest level since it was published in 2005, excluding the global financial crisis period in 2008/09 and the COVID outbreak in February 2020," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
 
"The output price index rose to the highest level since it was published in 2016. These signals confirm that China's economy is likely already going through stagflation."
 
Last month, rising commodity prices pushed factory-gate inflation to hit a new high, but consumer inflation was held in check by sluggish demand, requiring authorities to walk a tightrope between boosting the economy and further raising producer pricing. 
 
It is unlikely that the People's Bank of China will try to boost the economy by lowering the number of cash banks must have in reserve until the first quarter of 2022, according to Reuters surveyed analysts.
 
"Production remains weak, indicating the demand problem may be relatively large, and some easing of policy is still needed," said Zhou Hao, senior economist at Commerzbank.
 
In October, the official non-manufacturing PMI fell to 52.4 from 53.2 in September, when services shifted back to expansionary at the conclusion of a Covid-plagued summer.
 
But in October there was re-emergence of Cobid-19 clusters, which were mostly found in the north of the country, which is again threatening to interrupt the economic activity and deliver additional damage to the services sector as a result of the rigorous containment measures imposed by authorities to curb the spread of the outbreaks.
 
"Due to the impact of the epidemic and weather, consumers were more inclined to spend their holidays at home or travel for short distances," said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.
 
The pace of growth was slow in the transportation sector, which includes aviation and rail services, grew, even though there was a growth, Zhao said.
 
China's official composite PMI for October, which covers both manufacturing and service activity, was at 50.8, lower than 51.7 in September.
 
(Source:www.investing.com)