Business Essentials for Professionals


Chinese Factory Activity Growth In January Slows With Waning Demand Due To Covid-19 Surge

Chinese Factory Activity Growth In January Slows With Waning Demand Due To Covid-19 Surge
As a recurrence of Covid-19 cases and severe lockdowns affected production and demand in January, factory activity in China slowed, but the tiny expansion showed some signs of resilience as the world's second-largest economy approaches a likely rocky new year.
According to data released by the National Bureau of Statistics (NBS) on Sunday, the official manufacturing Purchasing Manager's Index (PMI) reached 50.1 in January, keeping above the 50-point level that separates expansion from contraction but decreasing from 50.3 in December.
The PMI was projected to drop to 50 by analysts.
The official figures were in stark contrast to those of a private study of primarily small industries in coastal areas, which revealed that activity had dropped at the fastest rate in 23 months.
Last year, China's economy started strong, rebounding from a pandemic-induced depression, but it began to lose steam in the summer, dragged down by debt issues in the housing market and rigorous anti-virus measures that harmed consumer confidence and spending.
Corporate profit margins have also been squeezed by rising raw material costs and weak demand. Industrial profits climbed at the slowest rate in more than a year and a half in December.
With the real estate recession anticipated to last at least through the first half of this year, and new virulent Covid-19 types emerging, China's central bank has begun reducing interest rates and pouring more cash into the banking system to slash borrowing costs. More mild softening measures are planned in the near future.
Stability will take precedence ahead of the Communist Party's once-every-five-year meeting this year, with policymakers hoping to avoid a sharper slowdown that would jeopardize job creation.
However, such easing comes with risks, as other global central banks, like the Federal Reserve of the United States, are poised to raise interest rates, potentially destabilizing capital outflows from emerging countries such as China.
The International Monetary Fund dropped China's growth prediction for 2022 to 4.8 percent from 5.6 percent previously, citing property difficulties and the impact of severe Covid-19 limits on consumption.
"Industrial activity slowed due to weak domestic demand," said Zhang Zhiwei, chief economist at Pinpoint Asset Management. "The service sector is also affected adversely by the outbreaks in many cities."
"The weak PMI indicates the policy easing measures from the government have not yet been passed to the real economy... We expect the government will step up policy supports in coming months, particularly through more fiscal spending."
In the official PMI for production, a sub-index decreased to 50.9 from 51.4 in December, while new orders dropped to 49.3 from 49.7.
While the number of new Covid-19 cases in China has been minimal in comparison to many other nations, a rise of infections in the manufacturing hub of Xian since late December has forced many auto and chip firms to shut down operations. As the city began to emerge from its lockdown, production gradually resumed.
Samsung Electronics Co Ltd temporarily altered operations at its Xian manufacturing facility for NAND flash memory chips last month, but production has since back to normal, the company said on Wednesday.
Tianjin's output was further hampered by an outbreak of the highly transmissible Omicron strain.
Simultaneously, the government is attempting to reduce industrial air pollution levels in the run-up to the Beijing Winter Olympics, which begins on Friday. Steel mills in northern China have been directed to reduce production until mid-March.
In January, a survey of China's enormous services industry revealed that growth slowed as virus containment measures weighed on consumer morale.
In January, China's official composite PMI, which includes manufacturing and services, was 50.1, down from 52.2 in December.
China's GDP expanded by 4.0 per cent year over year in the fourth quarter, which was the slowest pace for the economy in almost a year.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc