China factory activity lifted by strong demand, but power shortages and rising costs weigh on production
- The Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 50.6 in October from 50.0 in September
- The index focuses on small, private firms unlike the official index whose respondents come mostly from larger, state-owned firms
China’s October factory activity grew at its fastest pace in four months as new orders rose and disruptive power shortages started to ease, but input costs remained high while export orders declined further, a private survey showed on Monday.
The Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 50.6 in October – its highest level since June.
We need exercise caution when interpreting both the official and Caixin PMI due to their imperfect performance
Analysts attributed the divergence to the different samples and survey periods. But even the more bullish Caixin survey, which focuses on smaller firms in coastal regions, showed a subindex for output showed production shrank for the third consecutive month and at a faster rate than in September.
New export orders fell for a third straight month, countering a rise in a subindex for new orders to 51.4 from 50.8 in September.
“The Caixin manufacturing PMI managed to reflect the partial normalisation of power supply in October,” said Lu Ting, chief China Economist at Nomura, although he added it failed to capture the massive power blackouts in September.
“We need exercise caution when interpreting both the official and Caixin PMI due to their imperfect performance.”
A power crunch triggered by a shortage of coal, tougher emissions standards, and strong industrial demand had led to widespread curbs on electricity usage, hurting factory output.
But the situation began to improve in October under heavy government intervention.
Wang Zhe, senior economist at Caixin Insight Group, warned that a new wave of coronavirus outbreaks in many central and western regions since late October could deal a fresh blow to economic activity.
“It is critical to balance the goals of controlling the outbreaks and maintaining normal economic activity,” said Wang.
China’s economic growth is likely to slow to 5.5 per cent in 2022 from an expected expansion of 8.2 per cent this year, a Reuters poll showed.
