China power crisis weighs on manufacturing activity, drops to lowest level since coronavirus outbreak
- The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – fell to 49.6 in September, from 50.1 in August
- China’s official non-manufacturing PMI – which measures morale in the services and construction sectors – rose to 53.2 in September
Activity in China’s manufacturing sector contracted in September due to “low sentiment of high energy-consuming industries”, data released on Thursday showed, but the services sector bounced back strongly from coronavirus outbreaks last month.
A reading above 50 indicates growth in sector activity, while a reading below the mark represents contraction. The lower the reading is below 50, the faster the pace of contraction.
But the official non-manufacturing PMI – which measures morale in the services and construction sectors – rose to 53.2 in September, from 47.5 in August. The increase was driven by a rise in the services index from 45.2 to 52.4. The construction index, though, dropped to 57.5 in September from 60.5.
The figure was above expectations in the Bloomberg survey, which had predicted a rise to 49.8, as activity in the railway transport, air transport, accommodation, catering, ecological protection and environmental control sectors all recovered having been impacted coronavirus outbreaks in August.
“In September, due to the low sentiment of high energy-consuming industries, the manufacturing PMI fell to below the threshold. But looking from the sentiment perspective, among the 21 surveyed sectors, there were 12 above the threshold, two more than last month, and most manufacturing sectors expanded from last month,” said senior NBS statistician Zhao Qinghe.
“From the perspective of market expectations, enterprises are optimistic about the recent recovery of the service market.”
The composite PMI, which includes both manufacturing and services activity, rose to 51.7 in September from 48.9 in August.
“The manufacturing PMIs diverged this month. But the big picture is that industry was coming off the boil even prior to the latest power shortages. On a more upbeat note, the official surveys point to a sharp rebound in services activity, which is probably enough to ensure that overall economic output picked up this month, partially reversing a sharp decline in August,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
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“Conditions in the manufacturing sector picked up in September from the previous month, though the improvement was limited. The Caixin China manufacturing PMI came in at 50, indicating the downward pressure on the economy was still high,” said. Wang Zhe, senior economist at Caixin Insight Group.
“On the one hand, the [coronavirus] continued to impact demand, supply, and circulation in the manufacturing sector. The state of the [coronavirus] overseas and the shortage of shipping capacity also dragged down total demand. [Coronavirus] control measures have clearly impacted the logistics industry.”
This week, Goldman Sachs lowered their economic growth forecast for China this year to 7.8 per cent from 8.2 per cent, citing recent sharp cuts to production in a range of high-energy-intensive industries.
The World Bank, though, actually raised its China growth forecast to 8.5 per cent growth this year, compared with 8.1 per cent forecast in April.