China’s factory activity unexpectedly slows in July as COVID-19 flares

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BEIJING: China’s factory activity contracted unexpectedly in July after it bounced back from COVID-19 lockdowns the previous month, as new virus flare-ups and a murky global outlook weighed on demand, a survey on Sunday (July 31) found.

The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50 points separating contraction from growth, according to the National Bureau of Statistics (NBS).

Analysts polled by Reuters had expected it to improve to 50.4.

“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 posted to the agency’s website.

Ongoing contraction in the oil, coal and metal smelting industries was one of the main factors pushing July’s manufacturing PMI down, he said.

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The reading was the lowest in three months, with output, new orders and employment sub-indices all contracting.

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.

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 brittle.”

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.

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

Beijing’s decision to stop mentioning the growth target 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-19 flare-ups in some cities led to a tightening of activity as the once-mighty real estate market swings from crisis to crisis.

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Chinese manufacturers are also still grappling with high commodity prices, which are weighing down profit margins, and export prospects are clouded by fears of a global recession.

China’s southern megacity of Shenzhen has vowed to “mobilize all resources” to contain a slow-spreading COVID-19 outbreak, ordering strict implementation of tests and temperature controls and closures for COVID-19-affected buildings .

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

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

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