March factory activity in China contracts at fastest pace in 2 years: survey

Chinese factory activity fell at the fastest pace in two years in March as the nationwide resurgence of COVID-19 and the economic fallout from war in Ukraine caused sharp declines in production and demand, a business survey revealed on Friday.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 48.1 in March, indicating the steepest rate of contraction since February 2020, from 50.4 the previous month.

The 50-point index separates growth from contraction on a monthly basis.

The deterioration in manufacturing conditions was broadly in line with the official PMI released on Thursday, which showed activity had contracted at the fastest rate since October 2021. The Caixin survey of the private sector focuses more on small coastal enterprises than the official investigation.

Domestic and foreign demand fell. A new orders sub-index fell at the fastest pace since February 2020, when China grappled with the first wave of COVID-19 outbreaks, leading to a 6.8% contraction in gross domestic product in the first quarter of 2020.

In particular, the decline in new export orders in March accelerated as companies surveyed said the latest virus outbreaks in China, disruptions in the shipping industry and heightened market uncertainties due to the Ukrainian crisis led customers to cancel or suspend their orders.

Inflation in input costs hit a five-month high, with a number of factories attributing higher prices to tight global supply chains, which have been exacerbated by the war in Ukraine.

The world’s second-largest economy, which accelerated in the first two months of the year, is now at risk of slowing sharply as authorities restrict production and mobility in COVID-hit cities, including major economic hubs such as Shanghai and Shenzhen.

This slowed production growth with the production sub-index at 46.4 in March, the lowest since February 2020.

Government officials have pledged to roll out policies to stabilize the economy as downward economic pressure intensifies, a cabinet meeting said on Wednesday.

The employment index, which rose for the first time in eight months as factories ramped up hiring after the Lunar New Year holiday, was a bright spot in the otherwise slow Caixin survey.

“Right now, China is facing the most severe wave of epidemics since the beginning of 2020. Meanwhile, uncertainty has increased overseas,” said Wang Zhe, senior economist at Caixin. Insight Group, in a press release accompanying the release of the data.

“The prospect of war between Russia and Ukraine is uncertain and the commodity market is convulsing. Various factors are resonating, adding to the downward pressure on the Chinese economy and underscoring the risk of stagflation.”

Wang called for more help for vulnerable groups and small businesses, noting that policymakers must strike a balance between maintaining normal production and public health and safety.

(Reporting by Ellen Zhang, Stella Qiu and Ryan Woo; Editing by Sam Holmes)

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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