China’s April factory activity contracts at a faster rate as lockdowns bite

Workers in protective gear stand on a street during a lockdown amid the coronavirus disease (COVID-19) pandemic in Shanghai, China April 16, 2022. REUTERS/Aly Song

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  • China’s official manufacturing PMI in April at 47.4 from 49.5 in March
  • Official April services PMI at 41.9 vs. 48.4 in March
  • Caixin PMI at 46 in April vs. 48.1 in March

BEIJING, April 30 (Reuters) – Chinese factory activity contracted at a faster pace in April as widespread COVID-19 lockdowns halted industrial production and disrupted supply chains, raising fears of a slowdown brutal economic downturn in the second quarter that will weigh on global growth.

The official purchasing managers’ index (PMI) for the manufacturing sector fell to 47.4 in April from 49.5 in March, in a second straight month of contraction, the National Bureau of Statistics said on Saturday ( NBS). It was the lowest since February 2020. read more

A Reuters poll expected the PMI to fall to 48, well below the 50-point mark that separates contraction from growth on a monthly basis.

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The headline PMI reading, combined with an even sharper crimp in services, offered the first clues about the performance of an economy ravaged by expanding COVID curbs, such as an extended closure of the Shanghai Mall. Read more

Factory activity shrank at its fastest pace in 26 months, a Caixin survey of private companies showed, with the new export orders index dipping to its lowest since June 2020, suggesting a weakening of one of the few bright spots in the economy.

In a statement, the statistics office linked the COVID disruptions to a significant drop in demand and supply in the manufacturing sector.

“Some companies are facing difficulties in sourcing raw materials and key components, selling finished products and increasing inventory,” the BES said, with the situation improving with the pandemic under control and the adopting supportive policies.

Dozens of major Chinese cities are said to be in full or partial lockdown, thanks to a strict COVID policy.

With hundreds of millions stuck at home, consumption is being hit hard, prompting more analysts to revise growth forecasts for the world’s second-largest economy downward.

The production sub-index slipped to 44.4 in April from 49.5 a month earlier, while new orders fell to 42.6 from 48.8 in March, according to the BES.

Electric car maker Tesla (TSLA.O) reported a temporary drop in production due to China-imposed restrictions after saying last week’s shutdowns cost about a month’s worth of build volume at its factory in Shanghai. Read more

Some analysts are even warning of rising recession risks, saying policymakers need to provide more stimulus to meet an official growth target of around 5.5% in 2022.

In addition to COVID-related restrictions and heightened risks from the war in Ukraine, continued weakness in consumption and a prolonged slowdown in the housing market are also weighing on growth, analysts said.

The authorities have promised additional aid to boost confidence and avoid further job losses in a politically sensitive year.

China will step up its political support, said the Politburo, a top decision-making body of the ruling Communist Party, encouraging struggling stock markets. Read more

However, analysts say their task will become more difficult unless China eases its zero COVID policy, which it has shown little sign of doing.

“While these (official) messages are positive, the key concerns the specific policies and their implementation,” Zhiwei Zhang, president and chief economist of Pinpoint Asset Management, said in a client note on Friday.

Additionally, analysts say traditional policy tools, such as interest rate cuts and larger cash injections, may have limited impact if lockdowns cripple activity. Read more

President Xi Jinping chaired a meeting of top leaders this week that announced a big infrastructure push to boost demand, reinforcing Beijing’s preference for big-ticket projects to spur growth.

But such plans take time and Beijing is seen as wary of another massive stimulus program such as its 4 trillion yuan ($605.82 billion) spending during the global financial crisis of 2008 and 2009 that created a mountain of debt.

A sharp shift to more aggressive easing could also further boost capital outflows, adding to the headaches of policymakers.

China’s currency, the yuan, fell more than 4% in April, its biggest monthly decline in 28 years, while stock markets were the second worst performers this year after sanctions imposed on Russia. Read more

China’s gross domestic product (GDP) rose 4.8% in the first quarter from a year earlier, beating analysts’ expectations for a 4.4% gain, but March data fell sharply weakened, with a contraction in retail sales and the highest unemployment rate since May 2020. Read more

A sub-index for construction activity, a key economic driver that Beijing hoped to support growth this year, stood at 52.7 in April, down from 58.1 in March.

Construction equipment maker Caterpillar Inc (CAT.N) warned on Thursday that demand for excavators in China, one of its biggest markets, could fall below pre-pandemic levels in 2022. Lockdowns also hurt sales at companies such as General Electric Co (GE.N) and 3M Co (MMM.N). Read more

A female banker at one of China’s top ten banks said she had seen the biggest impact among small and medium-sized businesses.

“Small borrowers, especially those in the manufacturing sector, are really hurting this time around because they don’t have the cash reserves,” she said.

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Reporting by Stella Qiu, Ellen Zhang, Min Zhang and Ryan Woo; Editing by Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.

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