Daily Management Review

China Manufacturing Slows Ion June Amid Wider Supply Chain Disruptions In Asia


China Manufacturing Slows Ion June Amid Wider Supply Chain Disruptions In Asia
Higher costs of raw materials, a shortage of semiconductors and an outbreak of Covid-19 in the major export province of Guangdong – even while a wider supply chain disruption in Asia ensued, forced down growth of factory activity in China in June – reaching to a four month low.
Other manufacturing powerhouses in Asia have been hit by the chip supply crunch. Semiconductor shortages forced down industrial output of Japan and South Korea in May which added on to the concerns of staggering momentum and recovery in their respective economies.
Data from the National Bureau of Statistics showed on Wednesday that in June the official manufacturing Purchasing Manager's Index (PMI) in China went down slightly to 50.9 compared to 51.0 in May. The data however was more than the slowdown expectations of analysts at 50.8. still it was higher than the 50-point mark that separates growth from contraction on a monthly basis.
"This was largely a result of COVID, which has affected factory output and also new export orders due to the rising waves of infections and resultant restrictions in some neighbouring economies," said Iris Pang, Great China chief economist at ING.
"Overall, (it's) not a great month but no really worrying signs ... China's growth rate is still positive, though it would be a lot lower in H2 than H1, mostly because of the change in base effects," said Pang, referring to year-ago comparisons with 2020's pandemic disruptions.
Compared to 52.7 in the previous month, the sub-index for production eased to 51.9 in June which was also a four-month low. Constraining factors such as a shortage of semiconductors, inadequate supply of coal, a power shortage and lack of equipment maintenance were identified as the reasons for the slowdown in production by Zhao Qinghe, a senior statistician at the NBS.
Even though the Chinese government has said that the power shortage should ease soon, factory operations were hit by a shortage of coal supply in China's southern regions, which had started in mid-May, resulting in power shortages.
There was also a drop in new export orders in June which was a second straight month of drop and the drop in June was faster than the previous month. Analysts said that this was primarily because of  resurgence of Covid-19 variants throughout the world which has forced some countries to impose lockdowns again to try and curb the spread of fresh infections.
A sub-index for raw material costs in the official PMI stood at 61.2 in June, compared with May's 72.8, as the government cracked down on high raw material prices.
However with improvement in domestic demand, there was also an uptick in growth of new orders.
Despite recent sequential moderation, the PMI prints were still solid in the second quarter, believe economists at Nomura. They said that this pointed to the resilience of China's economy even though there has been a resurgence of Covid-19 infections in Guangdong province.
"We expect the official manufacturing PMI to rebound slightly to 51.2 in July, thanks to the release of pent-up demand following the containment of latest wave of COVID-19, the recovery of some South China ports, and the relaxation of safety and environmental protection rules imposed before the 100th anniversary of the ruling party's foundation."