October plant activity in China grows faster, but production weighs – Caixin PMI

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BEIJING (Reuters) – Chinese factory activity grew at its fastest pace in four months in October, supported by stronger demand, but power shortages and rising costs weighed on output, a Monday revealed a survey of businesses.

FILE PHOTO: Containers are seen at a port in Ningbo, Zhejiang province, China May 28, 2019. REUTERS / Stringer

The Caixin / Markit manufacturing purchasing managers (PMI) index hit 50.6 in October, its highest level since June. Economists in a Reuters poll expected the index to remain unchanged from September at 50.0. The 50 mark separates growth from contraction on a monthly basis.

China’s economy slows after impressive rebound from pandemic slump early last year, with its sprawling manufacturing sector hit by COVID-19 outbreaks, higher costs, production bottlenecks and, more recently, electricity rationing.

An electricity crisis triggered by a coal shortage, stricter emissions standards and strong industrial demand has resulted in widespread reductions in electricity use, hurting factory output.

A production sub-index showed that production fell for the third consecutive month and at a faster pace than in September.

An official survey on Sunday showed that Chinese factory activity contracted more than expected in October to contract for a second month.

The Caixin survey, which focuses on small export-oriented businesses in coastal regions, showed domestic demand stronger as local cases of COVID-19 decline, but foreign demand has remained sluggish as the pandemic raged in other countries.

A new orders sub-index fell to 51.4 from 50.8 in September, while new export orders fell for a third consecutive month.

“In summary, manufacturing recovered slightly in October compared to the previous month. But the downward pressure on economic growth continued, ”said Wang Zhe, senior economist at Caixin Insight Group.

“Supply tensions have become the primary factor affecting the economy. Raw material shortages and soaring raw material prices, combined with problems with electricity supply, have created severe constraints for manufacturers and disrupted supply chains. “

Input prices rose at their fastest pace since December 2016, in part due to rising energy and transportation costs, as factories shed jobs for the third month in a row, although ‘at a slower pace than in September, according to the survey.

To help struggling manufacturers, the Chinese cabinet announced on Wednesday that the government would defer certain taxes for manufacturers for three months from November.

China’s economic growth is expected to slow to 5.5% in 2022 from an expected expansion of 8.2% this year, according to a Reuters poll. The economy grew 9.8% in the first three quarters of 2021 compared to a year ago.

Wang of the Caixin Insight Group warned that a new wave of COVID-19 outbreaks in many central and western areas since late October could deal another blow to economic activity.

“It is essential to balance the goals of controlling epidemics and maintaining normal economic activity,” Wang said.

Reporting by Stella Qiu and Ryan Woo; Editing by Ana Nicolaci da Costa

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