On May 26, 2019, employees work on a production line manufacturing tools at a factory in Huaian, Jiangsu province, China. Picture taken on May 26, 2019. BEIJING, January 30, Reuters - China's factory activity fell at the sharpest rate in 23 months in January, underscoring the huge economic costs from the country's zero-COVID approach as surging cases and tough containment measures weighed on output and demand, a private survey showed on Sunday.
The PMI of Caixin Manufacturing Manufacturing Purchasing Managers fell to 49.1 in January -- its lowest level since February 2020, when the economy was still suffering from country-wide COVID 19 lockdowns in the early days of the Pandemic.
Economists had predicted that the index would drop to 50.4 from December's 50.9 but still point to some growth, according to a Reuters poll. On a monthly basis, the 50 mark separates growth from contraction.
The unexpectedly weak reading is likely to reinforce market expectations that policymakers need to take more support to stabilise the faltering economy. The central bank of China is expected to reduce borrowing costs in the coming weeks, and further easing measures are expected to be taken in the coming weeks. A sub-index for factory output fell to 48.4, down from 52.7 in December, with firms reporting a reduction in intakes of new business and a surge in COVID 19 cases and tough anti-virus measures affecting production, the survey showed.
Demand went up as new orders fell at the fastest clip since August this year and export orders fell the most since May 2020. Exports were one of the few bright spots for China's economy in the second half of last year.
The job market was under pressure with a gauge for employment falling to the lowest in almost two years.
From December to January, the resurgence of Covid 19 in several regions including Xian and Beijing forced local governments to tighten epidemic control measures that restricted production, transportation and sales of manufactured goods, said Wang Zhe, senior economist at Caixin Insight Group.
It became more obvious that China's economy is struggling under the triple pressures of contracting demand, supply shocks and weakening expectations. A surge in COVID 19 cases since December in the manufacturing hub of Xian forced many auto and chip makers to shut down production, although production has returned to normal as the city emerged from a lock-in.
In January, inflationary pressures also went up, while manufacturers confidence in the year ahead went up as firms were convinced that China would be able to control COVID 19 in January.
The world's second-largest economy rebounded from 2020's pandemic-induced slump in 2021, but it began losing steam in the early summer, weighed down by growing debt problems in the property market and COVID- 19 outbreaks that hit consumer spending.
The International Monetary Fund slashed its forecast for China's growth to 4.8% in 2022, from 5.6% previously, reflecting the property downturn and the hit to consumption from strict coronaviruses curbs.
The economy grew by 4.0% in the fourth quarter from a year earlier, its weakest expansion in one-and-a-half years.