China’s factory activity slows for fifth month in a row

China’s factory activity slows for fifth month in a row

(CNN) China’s manufacturing sector continued to lose momentum in February, as the official purchasing managers’ index (PMI) fell for the fifth consecutive month to 49.2, the lowest level since July 2020.

The PMI, which measures the activity of large and state-owned factories, dropped from 49.6 in January, indicating a deeper contraction in the sector. A reading below 50 signals a decline in output, while a reading above 50 indicates an expansion.

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The slowdown in China’s manufacturing was mainly driven by weak domestic demand, as the sub-index for new orders fell to 48.8, the lowest since April 2020. The sub-index for export orders also declined to 48.1, reflecting the impact of the global chip shortage and the resurgence of Covid-19 cases in some of China’s key trading partners.

The PMI data also showed that China’s factories faced rising costs and supply chain disruptions, as the sub-indexes for raw material prices and supplier delivery times both increased sharply. The sub-index for employment also fell to 48.1, suggesting that manufacturers were cutting jobs amid the downturn.

Weakness in China’s manufacturing activity has added to pressure on policymakers to boost stimulus © CFOTO/Sipa USA via Reuters

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The weak PMI data added to the concerns about China’s economic outlook, as the world’s second-largest economy faces multiple headwinds, including a slowing property market, a tightening regulatory environment, and a looming debt crisis.

China’s central bank has maintained a cautious stance on monetary policy, refraining from cutting interest rates or injecting liquidity into the banking system. Instead, it has relied on targeted measures, such as lowering the reserve requirement ratio for some banks and providing cheap loans for small businesses.

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However, some analysts have argued that China needs more aggressive stimulus to boost growth and prevent a hard landing. They have also called for more fiscal support, such as tax cuts and infrastructure spending, to stimulate domestic consumption and investment.
The PMI data came ahead of the annual meeting of China’s legislature, the National People’s Congress, which is expected to set the economic targets and policy priorities for 2024. The meeting, which will start on March 5, will also unveil the 14th five-year plan, a blueprint for China’s development in the next five years.

Source : FINANCIAL TIMES

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