China Factory Activity Contracted in August, Caixin PMI Shows
China’s factory activity contracted for the first time since April 2020 as fresh virus outbreaks disrupted production, a private gauge showed Wednesday.
The Caixin Manufacturing Purchasing Managers’ Index dropped to 49.2 last month from July’s 50.3, missing the median estimate of 50.1. The 50-level separates expansion in activity from contraction.
The data adds to signs of slowing growth momentum in the world’s second-largest economy after China imposed strict measures to bring new virus cases under control last month. The Caixin survey comes a day after the official manufacturing PMI showed output weakening in August but remaining just above the 50 mark.
“The plunge in Caixin PMI shows that small companies are facing huge challenges,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.
The Caixin index surveys many smaller and private companies, while the official PMI mostly covers larger, state-owned enterprises. The data is line with the official gauge, where the sub-indexes tracking large and medium manufacturers stayed above the 50-mark, indicating relatively stable operations, while the sub-index for small enterprises contracted for the fourth straight month in August.
What Bloomberg Economics Says...
The surprise drop in China’s Caixin manufacturing PMI into contraction in August gives policy makers another reason to step up growth support and reinforces our view that another cut in the reserve requirement ratio is coming within the next two months.
Chang Shu, chief Asia economist
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The drop in the Caixin index was largely due to lower production, a deterioration in supplier performance, higher raw material prices and an increase in transportation costs, according to Caixin and IHS Markit.
“Both supply and demand in the manufacturing sector shrank as the Covid-19 outbreaks disrupted production,” said Wang Zhe, senior economist at Caixin Insight Group, which released the data. “Authorities need to take a holistic view and balance containing Covid-19, stabilizing the job market, and maintaining stability in supply and prices.”
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