China’s factory activity unexpectedly slows in July as COVID flares up

Employees work on the vehicle component production line during a government-organized media tour to a factory of German engineering group Voith, following the coronavirus (COVID-19) outbreak in Shanghai, China, July 21, 2022. REUTERS/Aly Song

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  • China July Official Production PMI Below Forecast
  • July official services PMI grows more slowly
  • COVID flare-ups, global demand cooling, key real estate risks
  • Considering major stimulus unlikely, government abandons growth target

BEIJING, Jul 31 (Reuters) – China’s factory activity contracted unexpectedly in July after rebounding from COVID-19 lockdowns the previous month, as new virus flare-ups and obscuring global prospects weighed on demand, a survey found on Sunday.

The official purchasing managers index (PMI) of the manufacturing sector fell from 50.2 in June to 49.0 in July, the National Bureau of Statistics (NBS) said, below the 50-point separating contraction from growth and the lowest. in three months.

Analysts polled by Reuters had expected a reading of 50.4.

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“The level of economic prosperity in China has fallen, the foundation for recovery has yet to be consolidated,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

The ongoing contraction in energy-intensive industries, such as gasoline, coking coal and ferrous metals, contributed most to the decline in the July manufacturing PMI, he said.

Manufacturing and new orders sub-indices fell by 3 points and about 2 points respectively in July, while the employment sub-index fell 0.1 points.

Weak demand has hampered the recovery, Bruce Pang, chief economist and chief of research at Jones Lang Lasalle Inc, said in a research note. “Growth in the third quarter may face greater challenges than expected as the recovery is slow and fragile,” he added.

The official PMI for non-manufacturers fell to 53.8 in July from 54.7 in June from 54.7. The official composite PMI, which includes manufacturing and services, fell from 54.1 to 52.5.

The Chinese economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently indicated that their strict zero-COVID policy would remain a top priority. read more

Policymakers are willing to miss their GDP growth target of “about 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party. read more

Beijing’s decision to withhold the target’s mention has dispelled speculation that the authorities would adopt massive stimulus measures, as they have often done in previous recessions.

Capital Economics says policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, will likely prolong China’s economic recovery.

HALTING RECOVERY

After a rebound in June, the recovery of the world’s second-largest economy has faltered as the COVID flare-ups in some cities led to a tightening of activity as the once-mighty real estate market swings from crisis to crisis.

Chinese manufacturers continue to struggle with high commodity prices, which weigh on profit margins, as export prospects remain clouded by fears of a global recession.

China’s southern megacity of Shenzhen has vowed to “mobilize all resources” to curb a slow-spreading COVID outbreak, ordering strict implementation of tests and temperature controls and closures for COVID-affected buildings. read more

The port city of Tianjin, home to factories linked to Boeing (BA.N) and Volkswagen, and other areas have tightened curbs this month to fight new outbreaks. read more

According to World Economics, lockdown measures had some impact on 41% of Chinese companies in July, although the manufacturing business confidence index rose significantly from 50.2 in June to 51.7 in July.

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Reporting by Beijing Newsroom; Editing by William Mallard and Himani Sarkar

Our Standards: The Thomson Reuters Trust Principles.

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