China factory activity shrinks at fastest rate in 23 months

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China factory activity shrinks at fastest rate in 23 months

China s factory activity contracted at the sharpest rate in 23 months in January, which underscoring the huge economic costs from the country s COVID zero approach as surging cases and tough containment measures weighed on output and demand, a private survey showed on Sunday.

In January, the PMI of Caixin Manufacturing Purchasing Managers fell to 49.1 - 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 be downhill to 50.4 from December's 50.9 but still point to some growth, according to a Reuters poll. The 50 mark separates growth from contraction on a monthly basis.

The unexpectedly weak reading is likely to reinforce market expectations that policymakers need to roll out more support measures to stabilize the faltering economy. There are more modest easing steps expected in coming weeks as China s central bank has started cutting interest rates and pumping more cash into the financial system to bring down borrowing costs.

A sub-index for factory output fell to 48.4, down from 52.7 in December, with firms reporting reduced intakes of new business and a surge in COVID 19 cases and tough anti-virus measures affecting production, according to the survey.

Demand went up as new orders fell at the fastest pace since August this year and export orders shrank the most since May 2020. Exports were one of the few bright spots for the Chinese economy in the second half of last year.

The job market was put under pressure due to a drop in employment in the last two years, with a gauge for employment dropping to the lowest in almost two years.

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 evident that China's economy is straining 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, 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 believed that China would be able to control COVID 19 in January.

The world's second largest economy rebounded from 2020 s Pandemic - induced slump, but it started 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 in 2022 to 4.8%, from 5.6% previously, reflecting the downturn in the property market and the impact on consumption from strict coronaviruses curbs.

In the fourth quarter, the economy grew by 4.0% from a year earlier, its weakest expansion in one-and-a-half years.