China’s factory activity contracted at slower pace in January as coronavirus infections hampered production
- Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 49.2 in January, up from 49 in December
- On Tuesday, China’s official manufacturing PMI rose to 50.1 last month from 47 in December
China’s factory activity shrank more slowly in January after Beijing lifted tough coronavirus curbs late last year which helped ease pressure on manufacturers though infections among workers hampered production, a private sector survey showed on Wednesday.
The reading marks the sixth monthly contraction in a row as the 50-point index mark separates growth from contraction on a monthly basis.
“Given differences in the composition of the firms surveyed, the more modest increase in the Caixin index suggests that smaller firms and exporters are facing the greatest headwinds amid weak foreign demand,” said Julian Evans-Pritchard, an economist at Capital Economics.
Economists said the worst of the economic slump that followed abandonment of zero-Covid in early December seemed to have passed, because the associated wave of infections had been unexpectedly fast.
Nomura analysts said they were upgrading their outlook for China’s 2023 economic growth, because quarterly growth for the October-December had been unexpectedly strong and “China’s transition to herd immunity was faster than expected following the abrupt reopening in early December 2022”.
Analysts have said the economy, the world’s second-largest, will rebound in the first and second quarters, although long-term problems in the property sector and weakening external demand will be a drag on growth.
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The Caixin survey showed that the infection wave and subdued market conditions had continued to weigh on customer demand and factory operations in January, with subindices of both new orders and output indicating contraction, though at slower paces than in December.
Companies said employee resignations or absences due to virus infection contributed to a rise in work backlogs.
While some firms said the rollback of virus containment measures had helped ease strain on supply chains, worker shortages in some places were still hampering logistics.
With global economic growth sluggish and customer demand cooling, a subindex of new export orders indicated shrinkage for a sixth straight month in January, though less quickly than in December.
Overall, the pandemic continued to take a toll on the economy in January
Still, Chinese manufacturers expressed greater optimism about output for the coming 12 months. The degree of positive sentiment surged to the highest level since April 2021.
“Overall, the pandemic continued to take a toll on the economy in January. Supply and demand weakened, overseas demand was sluggish, employment declined, and logistics hadn’t fully recovered, while the quantity of purchases shrank, inventories dropped, and manufacturers faced growing pressure on profitability,” said Wang Zhe, senior economist at Caixin Insight Group.
“But optimism in the sector continued to improve as businesses expected a post-Covid economic recovery.”
