China April factory activity contracts at steeper pace as lockdowns bite

BEIJING, April 30 (BNA): Factory activity in China contracted more sharply in April, as the widespread shutdown of the COVID-19 virus halted industrial production and disrupted supply chains, raising fears of a sharp economic slowdown in the second quarter that will affect the economy. global growth. .

The National Bureau of Statistics said on Saturday that the official manufacturing PMI fell to 47.4 in April from 49.5 in March, the second straight month of contraction. That was the lowest level since February 2020, Reuters reported.

A Reuters poll had expected the PMI to fall to 48, well below the 50-point mark that separates contraction from growth on a monthly basis.

The headline PMI reading, along with a sharper curl in services, provided the first clues to the performance of an economy wracked by the expansion of COVID restrictions, such as the extended shutdown of the mall, Shanghai.

The Caixin private business survey showed factory activity contracted at the sharpest pace in 26 months, as the new export orders index fell to its lowest since June 2020, pointing to weakness in one of the few bright spots in the economy.

In a statement, the Census Bureau linked the coronavirus disruptions to a significant drop in both supply and demand in the manufacturing sector.

“Some companies are facing difficulties in key raw materials, component supplies, sales of finished products and increasing stocks,” the National Bureau of Statistics said, with things improving with the epidemic under control and supportive policies adopted.

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Dozens of major Chinese cities are believed to be in full or partial lockdown, thanks to a strict COVID policy.

With hundreds of millions left at home, consumption is taking a heavy hit, prompting more analysts to cut growth forecasts for the world’s second-largest economy.

The production sub-index fell to 44.4 in April from 49.5 the previous month, while new orders fell to 42.6 from 48.8 in March, according to the National Bureau of Statistics.

Electric car maker Tesla posted a temporary drop in production due to Chinese restrictions after it said last week that the shutdowns cost about a month of construction volume at its Shanghai factory.

Some analysts are even warning of rising recession risks, saying policy makers should provide more incentive to reach the official 2022 growth target of around 5.5%.

Aside from COVID restrictions and heightened risks from the Ukraine war, persistently weak consumption and a prolonged slump in the real estate market are also weighing on growth, analysts say.

The authorities promised more help to boost confidence and stave off further job losses in a politically sensitive year.

The Politburo, the ruling Communist Party’s top decision-making body, said China would step up policy support, giving some cheer to faltering stock markets.

However, analysts say their task will become more difficult unless China relaxes its non-proliferation policy, which has shown little sign of doing so.

“While these (official) messages are positive, the key is about specific policies and their implementation,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note to clients on Friday.

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Moreover, analysts say traditional policy tools, such as interest rate cuts and larger liquidity injections, may have limited impact if shutdowns paralyze activity.

President Xi Jinping chaired a meeting of top leaders this week that announced a major infrastructure push to boost demand, reinforcing Beijing’s preference for big projects to spur growth.

But such projects take time, and Beijing is seen as wary of another massive stimulus program like its 4 trillion yuan ($605.82 billion) spending during the 2008-2009 global financial crisis that created a mountain of debt.

An abrupt shift to more aggressive easing could stimulate more capital outflows, adding to the problems for policy makers.

The Chinese yuan fell more than 4% in April, its biggest monthly decline in 28 years, while stock markets were the second worst performer this year after Russia, which imposed sanctions on it.

China’s gross domestic product grew 4.8% in the first quarter of the previous year, topping analysts’ expectations for a 4.4% gain, but March data fell sharply, with a contraction in retail sales and the highest unemployment rate since May 2020.

The sub-index for construction activity, a key economic driver that Beijing hopes will support growth this year, stood at 52.7 in April, down from 58.1 in March.

Construction equipment maker Caterpillar (CAT.N) warned Thursday that demand for excavators in China, one of its largest markets, could fall below pre-pandemic levels in 2022. The shutdowns also hurt sales of companies like General Electric. . .N) and 3M Co (MMM.N).

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A banker at China’s top 10 banks said she noticed the biggest impact among small and medium-sized companies.

“Small borrowers, especially those in manufacturing, are really suffering this time, because they don’t have the cash reserves,” she said.

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