February 2, 2023

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Chinese manufacturing industries are contracting sharply as coronavirus cases rise

BEIJING (Reuters) – Chinese factory activity contracted at the sharpest pace since the pandemic first emerged nearly three years ago, after Beijing’s sudden rollback of anti-pandemic measures this month triggered a wave of Covid infections across the country.

The National Bureau of Statistics (NBS) said Saturday that its official purchasing managers’ index (PMI) fell to 47.0 in December from 48.0 in November. Economists polled by Reuters had expected the PMI to come in at 48.0. The 50-point mark separates contraction from growth on a monthly basis.

The decline was the largest since the early days of the pandemic in February 2020.

The data provided the first official snapshot of the manufacturing sector after China removed the world’s toughest COVID restrictions in early December. UK-based health data company Airfinity estimated that cumulative infections likely reached 18.6 million in December.

Analysts said the rise in infections could cause temporary labor shortages and increase supply chain disruptions. Reuters reported on Wednesday that Tesla (TSLA.O) It planned to run a reduced production schedule at its Shanghai plant in January, extending the reduced production it started this month into next year.

Weakening external demand on the back of growing fears of a global recession amid rising interest rates, inflation and the war in Ukraine could further slow China’s exports, hurting its huge manufacturing sector and hampering economic recovery.

“Most of the plants I know are well below what they could be at this time of year for next year’s orders. A lot of the plants I’ve talked to are at 50%, some are less than 20%,” said Cameron Johnson, partner at Tidalwave. Solutions, a supply chain consulting firm.

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“So even though China is opening up, manufacturing is still slowing because the rest of the global economy is slowing. Factories will have workers, but they won’t have orders.”

Hopes of recovery

NBS said 56.3% of manufacturers surveyed reported being significantly affected by the pandemic in December, up 15.5 percentage points from the previous month, although most also said they expected the situation to gradually improve.

Chinese President Xi Jinping, in his New Year’s Eve address on state television, said that China’s economic output for 2022 is expected to exceed 120 trillion yuan ($17.4 trillion).

In 2021, the inflation-adjusted GDP reached 114.92 trillion yuan, up 8.4% from 2020.

Gross domestic product expanded by 3% in the first nine months of 2022, against China’s official target for the full year of around 5.5%. The World Bank expects a growth of 2.7% in 2022.

China’s Banking and Insurance Supervisory Authority pledged this week to step up financial support for small and private businesses in the restaurant and tourism sectors hit hard by the COVID-19 pandemic, stressing that recovery of consumption will be a priority.

NBS data showed that the non-manufacturing PMI, which looks at service sector activity, fell to 41.6 from 46.7 in November, the lowest reading since February 2020.

The official composite PMI, which combines manufacturing and services, fell to 42.6 from 47.1.

“The weeks leading up to Chinese New Year will continue to be difficult for the services sector, as people will not want to go out and spend more than necessary for fear of infection,” said Mark Williams, chief Asia economist at Capital Economics.

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“But the outlook has to shine by the time people come back from the Chinese New Year holidays — infections will go down again and a significant proportion of people will have recently had COVID and feel they have some degree of immunity.”

($1 = 6.8972 CNY)

(Reporting by Ryan Wu, Joe Cash and Elaine Zhang). Editing by Sam Holmes, Kim Coghill and Allison Williams

Our standards: Thomson Reuters Trust Principles.