China factory activity contracted more slowly than expected in January - poll

BEIJING China's factory activity in January is expected to have contracted more slowly than in December, a Reuters poll showed on Monday, with production hampered as workers fell sick after the government dismantled its zero-COVID regime. While the exit wave of infections passed through the population and workforce faster than anticipated, disruptions on production lines persisted.

The official manufacturing purchasing managers' index PMI increased to 49.8 in January, compared to 47.0 in December, according to the median forecast of 25 economists polled by Reuters, reversing a downward trend from September, but falling shy of breaking back into expansion territory.

An index reading above 50 indicates expansion in activity on a monthly basis and a reading below indicates contraction. The PMI, which focuses on big and state-owned firms, and its survey for the services sector, will be released on Tuesday.

The data is one of the first indicators from the National Bureau of Statistics of how the economy has managed after the end of China's zero-COVID regime and the week-long Lunar New Year festival that ended on Friday. Many manufacturers had raised concerns that COVID infections among their workforce and seasonal factory closures would affect industrial productivity for the month.

Eighty percent of people in China had already been infected with COVID - 19 before the festivities began, according to China's chief epidemiologist, with the exit wave passing through the country faster than economists had anticipated and bringing fewer disruptions.

Early signs suggest that conditions improved in January, according to a note from Capital Economics, and any lingering supply-side issues will matter less at a time of year when factories wind down production in any case, they added, while forecasting a PMI reading of 50.0.

China's export-oriented manufacturers continue to report shrinking order books, as fears of a global recession lingers on the demand side of the world's second-largest economy.

China's cabinet pledged on Saturday to boost consumption to help drive the economy's recovery. Consumption increased 12.2 percent over the same period last year despite concerns that the services sector might be hampered by staff shortages resulting from COVID.

The PMI of Caixin Manufacturing will be published on February 1, and will focus more on small firms and coastal regions. According to analysts, a headline reading of 49.5 is up from 49.0 in December.