China factory activity picks up as energy crunch stabilises
Chinese manufacturing activity increased slightly in November, as power supply shortages eased and commodity prices stabilised to help boost output after two consecutive months of contraction.
The official manufacturing purchasing managers’ index was 50.1 for November, just above the threshold that separates expansion from contraction.
The world’s second-biggest economy has been buffeted in recent months by a property sector downturn and energy shortages that showed signs of abating in November, as Beijing eased a crackdown on developers and intervened to control fuel prices.
Thermal coal futures traded on the Zhengzhou Commodity Exchange at Rmb1,040 ($163) on Tuesday, down from a high of Rmb2,301 last month. The price stabilisation has helped ease power shortages that partly caused the manufacturing PMI to hit its lowest level in October since February last year.
Chinese regulators have also eased pressure on property developers by loosening credit controls and allowing more bond issuance in the past two months. The latest relaxations saw the gauge for the construction industry in the non-manufacturing PMI jump 3.9 per cent.
But analysts warned that China still faced significant economic challenges.
Jian Chang, chief China economist at Barclays Investment Bank, said the Chinese economy would “continue to see headwinds” from “a more significant contraction in property sales”, its zero-Covid policy and increased pressure to meet climate commitments in the coming year.
Shanshan Song, China economist at HSBC, said that more targeted support from Beijing was still needed, pointing to shrinking employment and underperforming small business activity.
The official data put greater emphasis on big state-owned enterprises. Large and medium-sized manufacturers on average reported an expansion in activity, but activity for small manufacturers continued to contract.
The November PMI benefited from a 7.4 per cent increase in production in the manufacturing sector. The other main sub-indices — new orders, raw material stores, workers employed and supplier delivery times — all remained below the 50-point threshold.
An increase in the monthly gauge of sector activity in November is common, with China’s Golden Week holiday at the beginning of October reducing the number of working days in the month.
The official data were released a day before a private manufacturing PMI reading from Caixin, which tends to put greater emphasis on smaller businesses.
Separately, South Korea’s industrial output in October fell at its fastest pace in almost a year and a half, official data showed, because of global supply chain disruptions that have hit factories across Asia’s fourth-biggest economy.
Finance minister Hong Nam-ki also warned that the new Omicron coronavirus variant could exacerbate supply chain problems.