China Dec manufacturing contracts sharply as COVID infections soar
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BEIJING (Reuters) – China’s factory activity shrank for a third straight month in December and at the fastest pace in almost three years as COVID infections swept through production lines after Beijing abruptly eased antivirus measures.
The official Purchasing Managers’ Index (PMI) came in at 47.0 versus a reading of 48.0 in November, the National Bureau of Statistics (NBS) said on Saturday. Economists had expected the PMI to come in at 48.0 in a Reuters poll. The 50-point mark separates contraction from growth on a monthly basis.
The drop was the largest since the pandemic began in February 2020.
The data offered the first official snapshot of manufacturing after China lifted the world’s toughest COVID restrictions in early December. Analysts said rising infections could lead to temporary labor shortages and increased supply chain disruptions, which would further weigh on economic activity in the coming months.
The lifting of antivirus rules has been welcomed by businesses, although it has disrupted operations. Reuters reported on Wednesday that Tesla plans to run a reduced production schedule at its Shanghai plant in January and extend the reduced production started this month into next year.
Weaker external demand amid rising global recession fears amid rising interest rates, inflation and the war in Ukraine could further slow China’s exports, hurting its massive manufacturing sector and hampering economic recovery.
Some companies try to minimize disruption by dividing their remaining healthy employees into two teams, with only one team working a given shift, or by maintaining a closed system at their factories and surrounding campuses.
After three years of zero-tolerance measures, from closed borders to frequent lockdowns, the world’s second-biggest economy announced that from January 8 the country will no longer require quarantine from travelers.
The move has raised hopes that the country’s multi-billion dollar travel business will soon flourish again, but countries longing for the return of Chinese tourists will likely have to wait longer.
The non-manufacturing PMI, which tracks activity in the service sector, fell to 41.6 from 46.7 in November, NBS data showed, also marking its lowest reading since February 2020.
The official composite PMI, which combines manufacturing and services, fell to 42.6 from 47.1.
The country’s banking and insurance regulator this week pledged to step up financial support for small and private businesses in the hospitality and tourism sectors that have been hit hard by the COVID-19 epidemic, stressing that a recovery in consumption is a will be priority.
But analysts expect the economy will struggle in the winter months as much of the population becomes infected and unable to work while recovering.
The official purchasing managers’ index for the manufacturing sector focuses largely on large and state-owned companies. The Caixin Private Sector Purchasing Managers’ Index, which focuses more on small firms and coastal regions, will be released on January 3rd. The Reuters poll expected a reading of 48.8.
(Reporting by Ryan Woo, Joe Cash and Ellen Zhang; Editing by Sam Holmes and Kim Coghill)