China factory production cuts after Covid outbreaks

Shenzhen Covid curbs

China’s factory output unexpectedly fell in July following new Covid outbreaks and an increasingly pessimistic global outlook.

The contraction followed June’s rebound after weeks of slowdowns and Covid restrictions that had hit the country’s industrial hubs.

The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, the National Statistics Office (NBS) he said, below the 50-point mark that separates contraction from growth and the lowest in three months. Analysts polled by Reuters had expected a reading of 50.4.

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“The level of economic prosperity in China has fallen, the foundations for recovery still need consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

The continued contraction in energy-intensive industries such as gasoline, coking coal and ferrous metals contributed most to the decline in July’s manufacturing PMI, he said.

The production and new orders sub-indices fell 3 points and about 2 points in July, respectively, while the employment sub-index fell 0.1 point.

Weak demand has constrained the recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Growth in the third quarter may face bigger challenges than expected as the recovery is slow and fragile,” he added.

July’s official non-manufacturing PMI fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell from 54.1 to 52.5.

China’s economy barely grew in the second quarter amid widespread lockdowns, with top leaders recently signaling that its strict zero-covid policy would remain a priority.

Policymakers are prepared to miss their GDP growth target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party.

Chinese factories face high raw material prices

Beijing’s decision to drop mention of the target has quelled speculation that the authorities would launch massive stimulus measures, as they have often done in past recessions.

Economy of capital says political restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery longer.

After a rebound in June, the recovery in the world’s second-largest economy has faltered as outbreaks of Covid led to a tightening of activity in some cities, while the once-powerful housing market crisis in crisis

Chinese manufacturers continue to struggle with high commodity prices, which are squeezing profit margins, as the export outlook remains clouded by fears of a global recession.

The southern Chinese megacity of Shenzhen has pledged to “mobilize all resources” to curb a slowly spreading Covid outbreak, ordering strict implementation of tests and temperature checks and lockdowns to in the buildings affected by Covid.

The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas have reduced curbs this month to combat new outbreaks.

According to World Economics, the lockdown measures had some impact on 41% of Chinese companies in July, although its manufacturing business confidence index rose significantly from 50.2 in June to 51.7 in July.

Reuters with additional editing by Sean O’Meara

Read more:

China’s industrial output is growing, pointing to a partial recovery

China retail sales implode as lockdowns hit April output

Sean O’Meara

Sean O’Meara is editor of Asia Financial. He has been a journalist for over 30 years, working on local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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