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China's factory activity shrinks amid COVID-19 resurgence

Economy
The purchasing managers' index (PMI) for China's manufacturing sector came in at 48 in November, down from 49.2 in October, data from the National Bureau of Statistics showed Wednesday.

XinhuaUpdated:  November 30, 2022

The purchasing managers' index (PMI) for China's manufacturing sector came in at 48 in November, down from 49.2 in October, data from the National Bureau of Statistics showed Wednesday.

A reading above 50 indicates expansion, while a reading below reflects contraction.

The November reading was weighed on by sporadic and scattered COVID-19 resurgences at home and the complex international environment, the bureau's senior statistician Zhao Qinghe said.

Despite the negative factors, some sectors have continued to see expansion. The PMI for industries such as agricultural and sideline food processing, food and beverages, medicine, as well as electrical and mechanical equipment manufacturing, remained in expansion territory, indicating that the output and demand of these sectors are growing.

Enterprises have reported rising difficulties due to disrupted logistics and production, financial strains, and lack of demand, Zhao said. The sub-index measuring suppliers' delivery time declined to 46.7, indicating that logistics remained slow in November.

Production activities have been disturbed by the epidemic outbreaks, with the sub-index for production standing at 47.8 in November, down 1.8 percentage points from the previous month. Demand has also declined, with the sub-index for new orders dropping 1.7 percentage points from October to 46.4.

The PMI for large, medium and small enterprises dropped by different extents, with small enterprises facing greater pressure, Zhao noted.

The sub-index measuring purchase prices of major raw materials retreated 2.6 percentage points from last month to 50.7. The sub-index for prices at the factory gate was 47.4, down 1.3 percentage points from October.

The fall in price indices was partly due to the country's efforts to ensure the supply of commodities while stabilizing the prices, said Zhang Liqun, a researcher with the Development Research Center of the State Council. However, he cautioned that the pressure of demand contraction is still persistent and dragging down market sentiment.

Efforts should be made to minimize the impact of the epidemic on economic recovery, expand investment and bolster the property market, Zhang said.

To combat downward pressure on the economy, the country's policymakers have made multi-pronged efforts to stabilize economic growth and invigorate domestic demand.

In the latest move to shore up support for the real economy, the central bank announced last week to cut the reserve requirement ratio (RRR) for eligible financial institutions by 0.25 percentage points.

The cut is expected to optimize the capital structure of financial institutions, increase their sources of long-term and stable capital, enhance their capital allocation capacity, and support industries and micro, small and medium-sized enterprises that are severely affected by the epidemic.

Prior to this move, a State Council executive meeting held last week urged financial institutions to increase loans to manufacturing firms, and underscored the need to expedite the construction of key projects, expand consumption, and ensure smooth transportation and logistics.

The RRR cut and buoyant capital market will help improve corporate financing conditions, noted Cai Jin, vice chairman of the China Federation of Logistics and Purchasing, adding that with the rollout of more optimized COVID-19 response measures, the negative impact of the epidemic will wane and the economy is expected to bounce back.

Wednesday's data also showed the PMI for China's non-manufacturing sector came in at 46.7 in November, down from 48.7 in October. 

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