China’s January factory activity expanded at slowest pace in seven months

Chinese factory activity expanded at the slowest pace in seven months at the start of 2021, weighed down by falling export orders amid a surging pandemic and rising costs, a business survey showed on Monday.

The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery in China, as Beijing grapples with a resurgence of local Covid-19 cases in northern China and navigates rising tensions with Washington and its allies.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) dropped to 51.5 last month, the lowest level since June last year and easing markedly from December’s reading of 53.0. The 50-mark separates growth from contraction on a monthly basis. Analysts had expected a slight drop to 52.7.

The survey broadly aligned with Beijing’s official PMI on Sunday, which showed the recovery in factory activity slowing as Covid-19 cases rose.

A sub-index for production in the Caixin/Markit PMI dropped to 52.5 in January, the slowest pace of expansion since April last year, while another sub-index for new orders fell to 52.2, the lowest since June.

In particular, export orders plunged back into contraction in January, ending a five-month growth streak as the surging global pandemic suppressed foreign demand.

China’s economy expanded at a faster-than-expected rate of 6.5 per cent in the fourth quarter last year, thanks to the surprisingly resilient export sector, as factories raced to fill overseas orders amid a surging pandemic.

But recovery hopes are being dampened by a sharp increase in Covid-19 cases as authorities race to impose lockdown measures to curb the spread of the virus in the country’s north, affecting steel mills and consumer confidence.

“The gauge for future output expectations was the lowest since May last year though it remained in positive territory, showing manufacturing entrepreneurs were still worried about the sustainability of the economic recovery,” said Wang Zhe, senior economist at Caixin Insight Group.

“In addition, the weakening job market and the sharp increase in inflationary pressure should not be ignored.”

Average input costs continued to rise sharply during January, with the rate of inflation only easing slightly from December’s three-year high. Respondents reported increased raw material prices and supplier shortages drove up expenses in January.

Factories continued to reduce their headcount at a faster pace in January.

Manufacturers also reported widespread logistics delays as government-imposed lockdown measures hit supply chains, leading to a marked increase in delivery times for suppliers.