China’s factory activity unexpectedly sinks to weigh on weak economy
Employees work on the production line of vehicle components at a factory of German engineering group Voith in Shanghai, China, July 21, 2022. (Reuters Photo)


Chinese manufacturing’s recovery from COVID-19 shutdowns unexpectedly faltered in July as activity sank, a survey showed Sunday, adding to pressure on the struggling economy as fresh virus flare-ups and a darkening global outlook weighed on demand.

Factory activity was depressed by weak global demand and anti-virus controls that are weighing on domestic consumer spending, according to the national statistics agency and an official industry group, the China Federation of Logistics & Purchasing.

A monthly manufacturing purchasing managers’ index (PMI) issued by the federation and the National Bureau of Statistics (NBS) retreated to 49 in July from June’s 50.2. Sub-measures of new orders, exports and employment declined.

Readings below 50 on a 100-point scale indicate activity declining. The July figure marked the lowest in three months. Analysts polled by Reuters had expected a reading of 50.4.

"Downward pressure is great," said economist Zhang Liqun in a statement issued by the Federation. "The impact of the epidemic is still on the rise."

"The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation," NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

Continued contraction in the energy-intensive industries, such as petrol, coking coal and ferrous metals, contributed most to pulling down the July manufacturing PMI, he said.

Sub-indexes for output and new orders fell by 3 points and about 2 points in July, respectively, while the employment sub-index edged down by 0.1 point.

Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. "Q3 growth may face greater challenges than expected, as recovery is slow and fragile," he added.

The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

Challenges grow

China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled their strict zero-COVID-19 policy would remain a top priority.

Policymakers are prepared to miss their GDP growth target of "around 5.5%" for this year, state media reported after a high-level meeting of the ruling Communist Party.

The party has stopped talking about this year’s official growth target after output shrank in the three months ending in June compared with the previous quarter.

The slowdown, which raises the risk of politically volatile job losses, adds to challenges for Beijing ahead of a ruling party meeting in October or November when President Xi Jinping is expected to try to break with tradition and award himself a third five-year term as party leader.

Beijing’s decision to drop mention of the target has doused speculation that the authorities would roll out massive stimulus measures, as they often have in previous downturns.

The ruling party has promised tax rebates and other aid to help entrepreneurs after anti-virus controls temporarily shut down Shanghai and other industrial centers starting in late March.

Faltering recovery

Capital Economics says that policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery more drawn-out.

After a rebound in June, the recovery in the world’s second-biggest economy has faltered as COVID-19 flare-ups led to tightening curbs on activity in some cities, while the once mighty property market lurches from crisis to crisis.

Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.

China’s southern megacity of Shenzhen has vowed to "mobilize all resources" to curb a slowly spreading COVID-19 outbreak, ordering strict implementation of testing and temperature checks, and lockdowns for coronavirus-hit buildings.

The port of Shanghai, the world’s busiest, says activity is back to normal, but factories and other companies are operating under anti-virus controls that limit their workforces and weigh on production.

The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas tightened curbs this month to fight new outbreaks.

According to World Economics, the lockdown measures had some impact on 41% of Chinese companies in July, though its index of manufacturing business confidence rose significantly from 50.2 in June to 51.7 in July.