China’s decline in factory activity slows as COVID curbs ease

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BEIJING — Chinese factory activity slowed to a slower pace in May as COVID-19 restrictions in major manufacturing hubs eased, but movement controls continued to weigh on demand and production. production, raising concerns about economic growth in the second quarter.

The official Purchasing Managers’ Index (PMI) for the manufacturing sector fell from 47.4 in April to 49.6 in May, the National Bureau of Statistics (NBS) said on Tuesday, beating forecasts from a Reuters poll. of 48.6.

The slowdown in Chinese factories is affecting production lines in other major Asian economies, with Japan and South Korea reporting steep production cuts.

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While the PMI hit a three-month high, it remained below the 50 point mark that separates contraction from growth for the third consecutive month.

“It shows that the impact of the COVID-19 outbreaks in May is not completely over, leaving the economic outlook bleak since the second quarter of 2020,” said Pang Ming, chief economist at Huaxing Securities.

Declines in China’s midstream and downstream production have been larger than they were upstream, and smaller companies have been hit harder than larger companies, Pang said.

The production sub-index fell from 44.4 in April to 49.7 in May, while the new orders sub-index fell from 42.6 to 48.2.

“It showed that manufacturing output and demand have recovered to varying degrees, but the recovery momentum needs to be strengthened,” said Zhao Qinghe, senior statistician at NBS, in a statement accompanying the data.

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Although restrictions in major manufacturing hubs in Shanghai and the northeast eased in May, analysts said the recovery in production had been held back by sluggish domestic consumption and slowing global demand. .

Sheana Yue, an economist at Capital Economics, said that although activity has started to rebound as the brakes from COVID-19 ease, the recovery is expected to remain tepid.

“Indeed, there continue to be signs of supply chain disruptions in the survey breakdown,” Yue said. “Delivery times have lengthened further as companies have continued to draw down raw material inventories, although at a slower pace than in April.”

This would further hamper exports, which have lost momentum this year, casting a shadow over the economic rebound.

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Many analysts expect the economy to contract in the April-June quarter from a year earlier, compared to 4.8% growth in the first quarter.

ZERO-COVID

China’s economy was ravaged by tight restrictions in April as the country grappled with the worst COVID-19 outbreak since 2020, with economic hardship in some ways now worse than two years ago.

Profits at Chinese industrial companies fell at their fastest pace in two years last month as high commodity prices and supply chain chaos eroded margins.

Along with weakness in the factory, services also remained weak. The official non-manufacturing PMI in May rose to 47.8 from 41.9 in April.

As consumers were confined to homes, retail sales in April fell 11.1% from a year earlier, the largest contraction since March 2020, with food services and auto sales being particularly affected.

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Activity in contact-intensive sectors was still contracting, indicating heavy pressure on the service industry, PMIs showed.

The services sector employment sub-index slipped to 45.3, down 0.5 points from April, indicating continued pressure in the labor market.

In a politically sensitive year, that could pose challenges for the government, which has prioritized stabilizing employment.

China’s official composite PMI, which includes both manufacturing and services, came in at 48.4, down from 42.7.

Analysts say Beijing has shown no signs of easing the zero-COVID policy, even after Premier Li Keqiang said last week that China would seek positive year-on-year economic growth in China. second trimester.

With greater urgency to stabilize the pandemic-hit economy, China’s cabinet on Tuesday pledged to step up tax credit repayments, speed up the issuance of local government special bonds and prioritize support for new technological infrastructures and energy projects.[nL1N2XM0RN

“(China will) push the actual lending rates steadily lower” and dole out cash subsidies for firms that hire college graduates until the end of year, according to a statement of the State Council. (Reporting by Ellen Zhang, Ella Cao and Ryan Woo; Editing by Sam Holmes)

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