China’s factory activity shrank in Dec 22 as Covid-19 persist

  • China’s factory activity shrank at a sharper pace in Dec 22 as surging coronavirus infections disrupted production and weighed on demand after Beijing largely removed antivirus curbs.
  • The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell from 49.4 in Nov 22 to 49 in Dec 22. The index has stayed below the 50-point that separates growth from contraction for five straight months.
  • The reading was the lowest since Sep 22 but beat analysts’ forecast of 48.8 in a Reuters poll.
  • Supply contracted, total demand remained weak, overseas demand shrank, employment deteriorated, logistics was sluggish, manufacturers faced growing pressure on their profitability, and the quantity of purchases, as well as inventories, stayed low.
  • Weakening external demand amid slowing global growth continued to drag on orders for export-oriented producers, with the Caixin subindex of new export orders shrinking at the fastest pace since Sep 22.
  • Logistics snags lengthened suppliers’ delivery times for the sixth month in a row, while employment in the manufacturing sector contracted for the ninth consecutive month due to muted production levels and difficulties sourcing workers amid the virus outbreaks.
  • Labour shortages and increased supply chain disruptions are anticipated, and combined with softer customer demand, may drive a further fall in production in winter months, even if mobility curbs are eased.
  • Chinese leaders have pledged to step up policy adjustments to cushion the impact on businesses and consumers of a surge in infections at a time when a weakening global economy is hurting exports.

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