China’s factories slide back to slower growth amid broad demand strains

China's factories slide back to slower growth amid broad demand strains
FILE PHOTO: Employees wearing face masks work on a car seat assembly line at Yanfeng Adient factory in Shanghai, China, as the country is hit by an outbreak of a new coronavirus, February 24, 2020. REUTERS/Aly Song/File Photo

BEIJING : China’s factories lapsed into slower growth in July just a month after rebounding strongly, with persistent demand weakness and domestic COVID-19 outbreaks throwing the country’s vast manufacturing sector back into a fresh period of uncertainty.

A private poll by Caixin on Monday showed factory activity expanded at a slower pace in July. That came on top of a bearish official survey on Sunday indicating the sector actually contracted last month.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) eased to 50.4 from 51.7 in June, the poll showed, well below expectations for a slight dip to 51.5 but above the 50-point index mark that separates growth from contraction.

On Sunday, the official manufacturing PMI from the National Bureau of Statistics (NBS) swung to 49.0 in July from 50.2 in June in an unexpected slump.

China’s manufacturing hubs including Shanghai saw a solid rebound in June from widespread COVID lockdowns in spring, but the momentum had already shown signs of braking, amid fresh virus flare-ups and weakening domestic and global demand, as well as a prolonged property market slump.

“The surveys suggest that China’s economic recovery slowed in July as the one-off boost from reopening faded,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “It is consistent with our view that activity will remain below trend in the coming quarters.”

In the Caixin survey, which focused more on smaller, export-oriented companies, a sub-index for output signalled a second monthly rise, but was noticeably slower than June.

Growth in new orders – domestic and export – also softened.

An index for employment fell for the fourth month and dived to the lowest in 27 months. Companies attributed the staff shedding to cost cutting, subdued sales and the non-replacement of voluntary leavers.

“Companies, strongly inclined to lower costs in the face of sluggish market demand, were cautious about expanding their staff,” said Wang Zhe, senior economist at Caixin Insight Group.

In one bright note, companies’ input costs rose only slightly after relentless price rises that squeezed profit margins. However, they had to cut their selling prices for the third month in a row due to soft demand.

The rising toll on China’s economy is evident with the country’s top leaders signalling their preparedness to miss the government growth target of around 5.5 per cent for this year and focusing on achieving the best results possible.

Stressing the third quarter will be a crucial period to get the economy back on track, Wang expected no massive stimulus measures.

“Effective implementation of existing policies is a more practical option.”


Source: Reuters