Daily Management Review

Chinese Factory Activity For August Expected To Continue To Register Growth Decline


Chinese Factory Activity For August Expected To Continue To Register Growth Decline
Restrictions imposed because of a surge in Covid-19 cases and rising costs of raw materials continued to put pressure on manufacturers possibly caused a continued slowdown in growth in China's factory activity in August, even as the economic recovery in the country lost momentum, estimated a Reuters poll which was released on Monday.
According to the median forecast of 33 economists polled by Reuters, economists expects the official manufacturing Purchasing Manager's Index (PMI) of China to drop to 50.2 in August compared to 50.4 in July. That would mark a fifth straight month of growth slowdown in the sector. 
A reading above 50 of the PMI indicates expansion compared to the previous month.
Analysts at Barclays in a note said Covid-19 outbreaks caused by the more infectious Delta variant and the imposition of the linked lockdowns likely caused a moderation in August in the PMIs for manufacturing and services in China.
"With slowing growth momentum and dovish signals (from China's central bank) we expect more easing, but still at a measured pace as policymakers eye headwinds in 2022," the analysts said.
Despite staging a strong recovery from the Covid-19 pandemic slump experienced by the second largest economy of the world in 2020, there have been indications in recent times of a slowdown in the economy because of Covid-19 outbreaks domestically in the country, as well as a slowdown in exports, stricter measures to cool down rising property prices and a strong campaign for reducing greenhouse gas emissions.
The amount of cash banks must hold as reserves was cut in mid-July by the central bank of the country - People's Bank of China (PBOC), with the aim of bolstering the economy, which released about 1 trillion yuan ($6.47 trillion) into the economy in long term liquidity.
Another cut later in the year is expected by many analysts.
The efforts of tackling the current Cvoid-19 outbreaks in China have apparently been largely brought under control with the country reporting zero locally transmitted cases as on August 29 – for the second straight day.
But such resurgence also prompted authorities around the country to impose strict pandemic control measures which included mass testing for millions of people as well as restrictions on travelling to varying degrees and shutdowns of important ports.
After shutting down for two weeks due to a Covid-19 case, operations were allowed to be restarted in late August at the Meishan terminal at China's Ningbo port. The closure operations at the port resulted in logjams at ports across the country's coastal regions and had a devastating impact on the already strained global supply chains in the face of resurgence of consumer spending and a shortage of container vessels.
Manufacturer’s profits have also been depressed because of higher raw material prices, especially that of metals and semiconductors. There was a drop in earnings of industrial companies in China in July for the fifth straight month.
China is to release outcome of its official PMI, which is mostly focuses on big and state-owned firms, as well as those of its sister survey on the services sector, on Tuesday.
Results of the private Caixin manufacturing PMI will be published on Wednesday and analysts expect the headline reading will drop to 50.2 compared to 50.3 in July.