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Chinese factory activity declined in September for the first time since February 2020, official data showed Thursday, as the country grapples with waves of power outages and concerns over the real estate industry. According To Brecorder.
According to the National Bureau of Statistics, the Purchasing Managers’ Index (PMI), a leading indicator of manufacturing activity in the world’s second-largest economy, fell to 49.6 in September from 50.1 in August.
Any score less than the 50-point level denotes contraction, whereas any figure greater than it shows growth.
This is the first time China’s PMI has fallen since Covid began spreading throughout the country, forcing the authorities to implement lockdowns that forced companies to close and wreaked havoc on the world’s second-largest economy.
However, officials are currently battling an energy crisis caused by limited coal supply and sky-high costs, which has resulted in plant closures and power shortages in at least 17 provinces in recent months.
The escalating power crisis, exacerbated by local government curbs on manufacturers’ energy consumption, has prompted some big banks to decrease their yearly growth forecasts for China. At the same time, there are also concerns about the impact on global firms such as Apple and Tesla’s supply chains.
Zhao Qinghe, the senior statistician at the National Bureau of Statistics, explained that the PMI fell below the threshold because of “the comparatively low prosperity of energy-intensive industries.”
Capital Economics’ Julian Evans-Pritchard warned: “Industry is set for additional deterioration given that property construction is in the early stages of structural slowing, power rationing is likely to linger for some time, and exports are expected to decline as global consumption patterns normalize.”
The figure fell somewhat short of Bloomberg analysts’ expectations for a modest rebound following the successful containment of recent coronavirus outbreaks.
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While China’s economy has largely recovered from the pandemic’s initial blow, several outbreaks this summer impacted domestic tourism and manufacturing, as the authorities implemented new containment measures and lockdowns.
As a result, China’s non-manufacturing PMI – which measures construction and service activity – contracted in August for the first time since the pandemic but recovered to increase in September.
Fears of default by Chinese real estate behemoth Evergrande – which is mired in a $300 billion debt quagmire – have also dented consumer confidence, as the government attempts to prevent financial risk from spreading to the rest of the property sector.
According to Zhiwei Zhang, chief economist at Pinpoint Asset Management, the low PMI will act as an “alert” for the government.
“Without a change in government policy, economic growth in Q4 is expected to slow further, and the pace of the slowdown may accelerate,” he warned.
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