Caixin China General Manufacturing PMI (March 2022)

Manufacturing performance dampened by latest COVID-19 wave in March

Key findings

• Production falls at quickest rate for just over two years amid tighter pandemic restrictions

• Steep declines in total new work and foreign demand

• Suppliers' delivery times worsen, cost pressures intensify

Data were collected 11-23 March 2022

The introduction of tighter restrictions to contain the spread of the latest wave of COVID-19 in China weighed heavily on manufacturing performance in March. Companies registered the quickest falls in output and new business since the initial onset of the pandemic in February 2020, with restrictions around mobility also leading to a steeper deterioration in supplier performance. Cost pressures meanwhile intensified, with input costs and output charges both rising at the sharpest rates for five months. The ongoing disruption to business operations, rising costs and recent invasion of Ukraine all weighed on business confidence for the year ahead, which slipped to a three-month low in March.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – fell from 50.4 in February to 48.1 in March, to signal a renewed deterioration in business conditions. Though modest overall, the pace of decline was the quickest seen since February 2020.

The drop in the headline PMI was partly driven by a renewed and solid fall in production at Chinese manufacturing firms in March. Furthermore, the rate of contraction was the steepest seen for 25 months. Companies frequently mentioned that the measures to contain the spread of COVID-19 had disrupted operations, supply and dampened customer demand.

New orders likewise fell at the sharpest rate since February 2020 in March. Companies commented that both domestic and foreign demand had waned, with new export business declining at the fastest pace for 22 months. The pandemic, and difficulties shipping items to clients, as well as greater market uncertainty due to the Ukraine war had dampened sales, according to panellists.

Disruption to business operations and logistics due to containment measures led to a further deterioration in average supplier performance. Notably, the rate at which delivery times increased was the fastest since last October.

Higher COVID-19 case numbers and increased restrictions also added pressure to capacities, as backlogs of work rose slightly for the second month in a row. This was despite a marginal increase in staffing levels.

Greater market uncertainty and lower sales led firms to cut back on their purchasing activity, though the rate of contraction was only marginal. At the same time, stocks of both inputs and finished goods fell as firms made greater usage of current inventories amid softer demand conditions. There were also reports that high purchasing costs had contributed to greater utilisation of current stocks.

Overall input costs rose at a sharp and accelerated pace in March, with the rate of inflation hitting a five-month high. Firms sought to pass on additional expenses to clients in the form of higher selling prices. The rate of charge inflation was the quickest since last October and solid overall.

Business expectations regarding future output waned to a three-month low in March. Companies cited a number of headwinds to the outlook, most notably, uncertainty relating to the pandemic, the war in Ukraine and steep rises in costs. Optimism was generally attributed to company expansion plans and hopes that global economic conditions will strengthen as the pandemic recedes.

Comment

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Manufacturing PMI came in at 48.1 in March, down from 50.4 the previous month. The index fell to its lowest since February 2020 amid the new wave of Covid-19 flare-ups.

“In the manufacturing sector, both supply and demand shrank. In March, Covid-19 flared up in several regions across China, disrupting manufacturing supply chains and impacting production. Market demand weakened, especially for consumer goods. In March, both the gauges of output and total new orders came in at the lowest levels since February 2020. Overseas demand fell sharply, and global transportation conditions deteriorated. The gauge for new export orders hit its lowest in 22 months in March.

“The job market improved marginally in March. The employment gauge climbed into positive territory for the first time since July 2021, though the rate of expansion was limited. Some enterprises said they added new employees, while some reported a suspension of recruitment due to the impact of the epidemic.

“Inflationary pressures increased. The war between Russia and Ukraine and subsequent sanctions against the former disrupted supply chains and largely pushed up commodity prices. The measures of both input costs and output prices rose to five-month highs in March. The growth in prices of energy and metals was relatively steep, with the high cost partly passed on to downstream producers.

“Manufacturing enterprises’ quantity of purchases decreased, deliveries took longer. Affected by the epidemic, the measure of suppliers’ delivery times fell further in contractionary territory, indicating longer delivery times in March. Due to the weak supply and demand, manufacturing enterprises reduced their purchases of raw materials, with the measure of quantity of purchases falling into negative territory. Stocks of finished goods and purchased items also fell.

“Manufacturers still held on to a positive outlook for their businesses. Surveyed entrepreneurs remained confident that authorities would get the domestic epidemic under control. However, the degree of their optimism was limited. The measure of future output expectations in March was over 2 points lower than its long-term average.

“Overall, impacted by factors including the Covid-19 outbreaks in multiple parts of China, manufacturing activity largely weakened in March. Supply contracted. Demand was also under pressure, and external demand worsened. The job market was more or less stable. Inflationary pressure continued to rise. And market optimism weakened.

“At present, China is facing the most severe wave of outbreaks since the beginning of 2020. Meanwhile, uncertainty increased abroad. The prospect of the war between Russia and Ukraine is uncertain, and the commodity market convulsed. A variety of factors resonate, aggravating the downward pressure on China’s economy and underscoring the risk of stagflation.

“Policymakers are facing double challenges of “precision” — improving the level of precision of epidemic control measures, to strike a balance between maintaining the normal order of production and life and guarding safety and health of the people; ensuring fiscal policy and monetary policy are implemented precisely. Policymakers should care about vulnerable groups, enhancing supports for key industries and small and micro businesses, to stabilize market expectations."

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@ihsmarkit.com

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About PMI

Purchasing Managers’ Index™ (PMI™) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to ihsmarkit.com/products/pmi.html.

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