BEIJING, Dec. 31 (Reuters) – China’s factory activity contracted at its strongest pace since the pandemic first broke out nearly three years ago, after Beijing abruptly reversed anti-epidemic measures this month, sparking a wave of COVID infections across the country .
The official purchasing managers index (PMI) fell from 48.0 in November to 47.0 in December, the National Bureau of Statistics (NBS) reported on Saturday. Economists had expected the PMI to come in at 48.0 in a Reuters poll. The 50-point barrier separates contraction from growth on a monthly basis.
The drop was the largest since the early days of the pandemic in February 2020.
The data provided the first official snapshot of the manufacturing sector after China lifted the world’s strictest COVID restrictions in early December. The cumulative number of infections likely reached 18.6 million in December, UK-based health data company Airfinity estimated.
Analysts said rising infections could lead to temporary labor shortages and more supply chain disruptions. Reuters reported on Wednesday that Tesla (TSLA.O) planned to implement a reduced production schedule at its Shanghai plant in January, extending reduced production that began this month into next year.
Declining foreign demand amid growing fears of a global recession amid rising interest rates, inflation and the war in Ukraine could further slow Chinese exports, hurt its huge manufacturing sector and hinder an economic recovery.
“Most factories I know are well below where they could be at this time of year for orders next year. Many factories I have spoken to are at 50%, some below 20%,” says Cameron Johnson, a partner at Tidalwave Solutions, a supply chain consulting firm.
“So even though China is opening up, production will still slow down as the rest of the global economy slows down. Factories will have workers, but they won’t have orders.”
NBS said 56.3% of manufacturers surveyed said they were strongly affected by the epidemic in December, up 15.5 percentage points from the previous month, though most also said they expected the situation to gradually improve .
Chinese President Xi Jinping said in his New Year’s Eve address on state television that China’s economic output is expected to exceed 120 trillion yuan ($17.4 trillion) by 2022.
In 2021, the inflation-adjusted gross domestic product was 114.92 trillion yuan, an increase of 8.4% from 2020.
GDP grew by 3% in the first nine months of 2022, against China’s official full-year target of around 5.5%. The World Bank expects growth of 2.7% for 2022.
China’s banking and insurance regulator pledged this week to ramp up financial support to small and private businesses in the hospitality and tourism sectors that were hit hard by the COVID-19 epidemic, emphasizing that a recovery in consumption will be a priority to be.
The non-manufacturing PMI, which looks at activity in the services sector, fell to 41.6 from 46.7 in November, the NBS data showed, also the lowest reading since February 2020.
The official composite PMI, which combines manufacturing and services, fell from 47.1 to 42.6.
“The weeks leading up to Chinese New Year will continue to be a challenge for the services sector as people don’t want to go out and spend more than they need to for fear of contracting an infection,” said Mark Williams, Asia chief economist at Capital Economics.
“But the outlook should improve around the time people return from the Chinese New Year holiday – infections will have subsided and a high proportion of people will have had COVID recently and feel they have some degree of immunity.”
($1 = 6.8972 Chinese Yuan Renminbi)
Reporting by Ryan Woo, Joe Cash and Ellen Zhang; Edited by Sam Holmes, Kim Coghill and Alison Williams
Our Standards: The Thomson Reuters Principles of Trust.
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