In December, China’s manufacturing activity decreased for the third consecutive month and at its fastest rate in almost 3 years as COVID outbreaks spread throughout the nation’s production lines as a result of Beijing’s rapid rollback of anti-virus measures.
The official purchasing managers’ index (PMI) decreased from 48.0 in November to 47.0 on Saturday, according to the National Bureau of Statistics (NBS).
A poll of economists believed the PMI was projected to be 48.0. On a monthly basis, the 50-point threshold divides contraction from growth.
The decrease was the largest since the pandemic’s early stages in February 2020.
After China lifted the harshest COVID regulations in the world in early December, the data provided the first official view of the industrial industry. According to Airfinity, a UK-based provider of health statistics, the total number of illnesses probably reached 18.6 million in December.
Rising infection rates, according to analysts, could result in a temporary labour shortage and more supply chain disruptions.
A report released on Wednesday showed Tesla (TSLA.O) intends to continue the decreased output it started this month into January at its Shanghai plant.
Weakening international demand brought on by mounting concerns about a global recession, rising interest rates, inflation, and the conflict in Ukraine may cause China’s exports to slow down even more, harming its sizable manufacturing sector and impeding the country’s economic recovery.
The majority of factories are significantly underperforming for orders for the following year at this time.
Cameron Johnson, a partner at the supply chain consultancy company Tidalwave Solutions, believed several plants are at 50% and some are even at 20%.
Therefore, despite China’s opening, manufacturing would nonetheless slow down as a result of the global economic slowdown.
Although factories will have employees, they won’t have any orders.
NBS revealed that 56.3% of manufacturers that were surveyed claimed the pandemic had a significant impact on them in December, an increase of 15.5 percentage points from the month before.
However, the majority also stated that they expected the situation to gradually improve.
Although the factory PMI was lower than anticipated, Zhou Hao, a chief economist at the brokerage house Guotai Junan International, noted that given the viral uncertainty during the previous month, it is genuinely difficult for analysts to make a solid projection.
The consensus is that the Chinese economy has passed its lowest point and is poised for a robust rebound.
This week, the country’s insurance and banking regulator promised to increase financial assistance to smaller and private enterprises in the hospitality and tourism industries that were severely impacted by the COVID-19 pandemic, underlining that a rebound in consumer spending will be a top priority.
Data from NBS statistics, the non-manufacturing PMI, which measures activity in the services sector, released from 46.7 in November to 41.6 in the month of December, showing the lowest value since February 2020.
The official and primary manufacturing and services PMI, or the composite PMI, backed away from 47.1 to 42.6.
Mark Williams, a Chief Asia Economist at the renowned Capital Economics, said the weeks leading up to Chinese New Year will continue to be difficult for the service industry since consumers won’t want to venture out and spend more than just required out of concern for contracting an infection.
However, the situation should improve around the time when individuals return from the Chinese New Year break because infections will have decreased and a significant portion of people will have just had COVID and feel somewhat immune.
Given China’s predicament with COVID, it is likely that many businesses will be affected the longer this prolongs. It is certain that 2023 will be a difficult year to revert the economy to a pre-pandemic state.