A private sector poll released on Tuesday revealed that China’s industry activity dropped at an even faster rate in December as rising COVID-19 infections disrupted output and weighed on consumption after Beijing largely eliminated anti-virus measures.
The manufacturing Caixin/Markit purchasing managers’ index (PMI) decreased from 49.4 in November to 49.0 in December.
For five consecutive months, the index has remained below the 50-point threshold that distinguishes expansion from contraction.
Despite beating analysts’ expectations of 48.8 in a survey, the number was the weakest since September.
On Saturday, China’s broader official PMI survey revealed a significantly deeper contraction, with the output index plunging to a level that is almost three years below average. The smaller, export-oriented companies are the focus of the Caixin survey.
The data give producers in China a glimpse of the difficulties they face as a result of the country’s dramatic COVID regulatory U-turn in early December, which has resulted in an increase in infections.
Wang Zhe, one of the senior economists at Caixin Insight Group, said supply decreased, total demand stayed weak, abroad demand decreased, employment declined, logistics lagged, manufacturers faced mounting pressure on their cash flow, and both the volume of purchases and inventories remained low.
Orders for export-oriented businesses continued to suffer due to weakening external demand and a sluggish global economy, with the Caixin sub-index of fresh export orders contracting at the sharpest rate since September.
While employment in the production sector decreased for the ninth month in a row as a result of reduced output levels and challenges finding workers amid the viral outbreaks, logistics hiccups prolonged suppliers’ delivery schedules for the sixth consecutive month.
Manufacturers were still relatively optimistic, though, since the COVID limits were lifted, causing the sub-index of growth of output to soar to its highest level since February.
Even if mobility restrictions are relaxed, some analysts predict that labour shortages, higher supply chain interruptions, and weaker customer demand might cause a further decline in production throughout the winter.
Markets anticipate a roaring 2023 recovery now that COVID-zero is in the rear-view mirror, according to Derek Scissors, a chief economist of the renowned China Beige Book.
Eventually, that will be true. A significant Q1 recovery, however, is becoming increasingly improbable due to the COVID tsunami, investment falling to a 10-quarter trough, and new orders continuing to fall through.
Sheana Yue, a Chinese economist at Capital Economics, cautioned against overinterpreting the short-term significance of the official and Caixin PMIs due to their propensity to exaggerate the effects of previous breakouts on the industry.
In the meanwhile, Yue predicted that the virus will likely continue to spread into more rural areas during the approaching Spring Move, severely depressing the services industry.
Yue was referring to the yearly mass migration that occurs after and before the Lunar New Year vacation.
On Thursday, the December Caixin services PMI rating will be released.
Chinese policymakers have promised to accelerate regulatory changes to mitigate the effects of a rise in COVID infections on consumers and businesses at a time when a faltering global economy is harming exports.
The second-largest economy in the world is projected to grow at a rate of about 3% for the entire year of 2022, making it one of its weakest years in nearly 50 years.
However, as China’s economic data depressed the market mood and the chief of the International Monetary Fund forewarned of a harsher 2023, oil prices fell on Tuesday from their top levels in a month.
By 0400 GMT, Brent crude futures had down by 25 cents, or 0.29%, to $85.66 per barrel, while U.S. West Texas Intermediate crude had decreased by 20 cents, or 0.25%, to $80.06 per barrel.
Prices were impacted by weaker manufacturing data from China, the second-biggest user of oil and the world’s largest importer of petroleum.
From 49.4 in November to 49.0 in December, the Caixin/Markit manufacturing purchasing managers’ index decreased.
For five consecutive months, the index has remained below the 50-point threshold that distinguishes expansion from contraction.
