Covid Flare-Ups Drag Down China’s Manufacturing Sector, Caixin PMI Shows
Activity in China’s manufacturing sector contracted in August for the first time since April 2020 as output dropped and total new orders fell further, a Caixin-sponsored survey showed.
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the country’s manufacturing sector, fell to 49.2 in August from 50.3 the previous month, according to the survey report released Wednesday. A number above 50 signals an expansion in activity, while a reading below that indicates a contraction. August’s reading was the lowest since February last year, when large swathes of the country shut down their economic activity due to Covid-19.
“The reappearance of Covid-19 clusters in several regions (in China) beginning in late July has dealt a blow to manufacturing activity,” said Wang Zhe, a senior economist at Caixin Insight Group. “Both supply and demand in the manufacturing sector shrank as the Covid-19 outbreaks disrupted production.”
The breakdown of the August Caixin manufacturing PMI showed goods producers’ output recorded its first fall since February last year. The gauge of total new orders dropped further in contractionary territory last month and reached its lowest level since April last year. New export orders declined for the first time since February.
Manufacturing companies reduced hiring for the first time since March last month, after payrolls remained broadly unchanged in July. Some surveyed firms said they reduced their staff numbers due to lower production requirements. As a result, the backlogs of work rose at the fastest rate in three months.
The gauge of input costs rose further last month, due to higher raw material prices and greater transportation costs, the report said. Factory-gate prices rose at a faster pace in August than in the previous month.
Manufacturers maintained a positive outlook for their businesses for the next 12 months, though the indicator for future output expectations remained unchanged from July’s 15-month low. That’s because concerns over how long the pandemic will take to be brought under control globally weighed on overall sentiment, the report said.
China’s official manufacturing PMI, released by the National Bureau of Statistics on Tuesday, fell slightly to 50.1 (link in Chinese) in August from 50.4 the previous month. The reading was slightly lower than the market consensus of 50.2, according to a research note by Nomura International (Hong Kong) Ltd.
The official PMI polls a larger proportion of big companies and state-owned enterprises than the Caixin PMI, which is compiled by London-based data analytics firm IHS Markit Ltd.
Nomura economists expected the official PMI to remain at around 50 in September. While China appears to have contained the latest wave of Covid-19, manufacturing enterprises could still face pressures from Beijing’s tightening real estate measures and regulations that could inflict damage on private sector investment, they said.
The economists expected the Chinese economy to slow down. “The worse-than-expected August (official) PMIs add conviction to our view that the growth slowdown in H2 (the second half) could be quite notable, due to the Covid-19 Delta variant, cooling property markets, slowing exports, and the campaign to reduce carbon emissions,” they said.
Contact reporter Tang Ziyi (firstname.lastname@example.org) and editor Heather Mowbray (email@example.com)
Read more about Caixin’s economic indexes.
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