China factory activity contracts at fastest rate since October 2021

China factory activity contracts at fastest rate since October 2021

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

The PMI released on Thursday showed activity contracted at the quickest rate since October 2021, which is in line with the deterioration in manufacturing conditions. The private sector Caixin survey focuses more on small firms in coastal regions than the official survey.

The average of the two PMIs is now under 50, and is now at its lowest since February 2016, said Sheana Yue, China economist at Capital Economics.

The deterioration was more significant among smaller private firms and exporters given the composition of the firms surveyed, according to the sharper reduction in the Caixin reading. Domestically and overseas, demand weakened markedly.

Since February 2020, a sub index for new orders declined at the sharpest rate since February 2020, when China struggled with the first wave of COVID 19 outbreaks, leading to a 6.8 per cent contraction in gross domestic product in the first quarter of 2020.

In March, the decline in new export orders accelerated as companies said the latest outbreaks in China, disruptions in the shipping sector and greater market uncertainties in Ukraine caused customers to cancel or suspend orders.

Input cost inflation hit a five-month high due to a number of factories attributed to higher prices and tight global supply chains, which were exacerbated by the war in Ukraine.

The world's second-largest economy, which picked up pace in the first two months of the year, is at risk of slowing as authorities restrict production and mobility in COVID-hit cities, including major economic centres like Shanghai and Shenzhen.

It has slowed output growth, with the sub-index for production at 46.4 in March, the lowest since February 2020.

The government officials have pledged to roll out policies to help the economy as downward economic pressure builds, a cabinet meeting said on Wednesday.

The employment index, which was expanded for the first time in eight months, was one of the bright spots in the otherwise sluggish Caixin survey, as factories ramped up hiring after the Lunar New Year holiday.

The commodity market is convulsed and the prospect of the war between Russia and Ukraine is uncertain, said Wang Zhe, Senior Economist at Caixin Insight Group, in a statement accompanying the data release.

A variety of factors resonate, which is a cause of the downward pressure on China's economy and underscoring the risk of stagflation. Wang said that there needs to be more help for vulnerable groups and small businesses, and policymakers need to strike a balance between normal production and public health and safety.