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Chinese factory activity growth slows due to supply bottlenecks and weak demand

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BEIJING: Chinese factory activity grew at a slower pace than expected in April as supply and transport bottlenecks weighed on production and overseas demand lost momentum momentum.

The official purchasing manager index in the manufacturing sector (PMI) fell to 51.1 in April from 51.9 in March, according to data from the National Bureau of Statistics (NBS) on Friday.

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It remained above the 50 point mark that separates growth from contraction on a monthly basis, but was below 51.7 in a Reuters analyst poll.

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“Some companies surveyed report that issues such as chip shortages, international logistics issues, container shortage and rising freight rates are still serious,” NBS statistician Zhao Qinghe said.

China’s economic recovery accelerated sharply in the first quarter with record growth of 18.3%, shaking off last year’s COVID-19-induced crisis. Analysts now expect the world’s second-largest economy to grow 8.6% in 2021.

The strong economic recovery has outpaced rebounds seen in manufacturing competitors such as India, which are still struggling to contain new waves of coronavirus outbreaks.

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The official PMI, which focuses largely on large state-owned companies, showed companies laid off workers again in April after increasing hiring the previous month for the first time in nearly a year. An employment sub-index slipped to 49.6 from 50.1 in March.

A gauge for new export orders stood at 50.4 in April, rising from 51.2 a month earlier but remaining in expansionary territory. A sub-index of small business activity stood at 50.8 in April, up from 50.4 in March.

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Building on the strong economic recovery, rising demand for raw materials fueled strong profit growth for Chinese industrial companies in March, as upstream profits outstripped those in downstream sectors.

A commodity cost sub-index in the official PMI stood at 66.9 in April, declining from 69.4 in March, but remaining elevated.

In the service sector, activity grew for the 14th consecutive month, but at a slower pace.

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