BEIJING (BLOOMBERG) – China’s factory activity contracted in September for the first time since the pandemic began last year, a sign of the damage a widespread electricity crunch is having on an already slowing economy.
The official manufacturing purchasing managers’ index declined to 49.6 from 50.1 in August, the National Bureau of Statistics said on Thursday (Sept 30), below the 50-mark that signals a decline in output.
The non-manufacturing gauge, which measures activity in construction and services sectors, improved to 53.2, well above the consensus forecast of 49.8.
China is facing a widespread power crunch that threatens to slow economic growth and disrupt global supply chains just ahead of the year-end Christmas shopping season. At least 20 provinces have restricted electricity use in September, curbing factory production on everything from aluminum and steel to toys and clothing.
The contraction was due to factors including a sluggish performance of energy-intensive industries, Zhao Qinghe, a senior statistician at the National Bureau of Statistics, said in a statement. The new orders sub-index has contracted for two straight months now, “reflecting a slowdown in manufacturing production activity and market demand,” he said.
Separately, the Caixin manufacturing PMI, a private gauge of output, rebounded to 50 from 49.2 in August. The improvement was thanks to firmer domestic demand and an increase in new orders, as export sales continued to decline, Caixin Insight Group said in a statement.
The electricity shock adds to a slew of headwinds already hitting the economy: the property market is under stress with China Evergrande Group facing a debt crisis; high commodity prices have squeezed industrial profits; the government has cracked down on industries from property to the internet; and consumer spending remains weak due to virus outbreaks.
“The supply disruption is quite widespread,” Cui Li, head of macro research at CCB International Securities, said in an interview on Bloomberg TV. “It’s probably going to be a continued issue in coming months.”
Bonds and the yuan were little changed given the data’s mixed signals about manufacturing and services activity. China’s benchmark CSI 300 Index rose as much as 0.8 per cent.
The data “offered the first glimpse of the cost from the energy crunch – and, for the manufacturing sector, it’s substantial, said Bloomberg Economics analysts Chang Shu and David Qu.
The “weak PMI sent an alarm to the government,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management in Hong Kong. “The big question is whether the government monetary and fiscal policies will become more supportive now or if the government will wait till the year end to change the policies.”
A full-scale loosening of monetary and fiscal policies is unlikely, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. The government will likely continue to provide targeted support for small businesses and innovative firms through measures such as cutting the reserve requirement ratio, while keeping policy tight for the property sector and local government financing, he said.
The sub-indexes for input and output prices climbed to their highest levels since May, showing factories are passing on the surging raw material prices to downstream sectors, said Mr Pang.
The services sector benefited somewhat from spending over the three-day Mid-Autumn Festival holiday, rebounding to 52.4. Even so, tourism revenue and travel remained below pre-Covid levels, indicating still weak consumer confidence after the government imposed stringent virus control measures to bring a wave of delta clusters under control.
Business volumes in industries impacted by the virus outbreak in August recovered significantly, including the transportation, hospitality and catering sectors, according to the NBS.