May 10, 2021

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Factory activity growth is slowing in China due to weak supply and demand bottlenecks

Beijing: Factory activity in China expanded at a slower pace and lost expectations in April as supply bottlenecks and rising costs weighed on production and external demand lost momentum.

Data from the National Bureau of Statistics on Friday showed that the official Manufacturing Purchasing Manager (PMI) index fell to 51.1 in April from 51.9 in March.

It remained above the 50-point mark separating growth from contraction on a monthly basis, but was lower than the 51.7 expected in a Reuters poll of analysts.

“Some companies surveyed reported that problems such as a shortage of chips, problems in international logistics, container shortages and high freight rates were still severe,” said Zhao Qinghe, a statistician with the National Bureau of Statistics, in a statement accompanying the official PMI.

This contrasts with a private sector survey, also released on Friday, which showed that factory activity in April expanded at the fastest pace in four months although companies in this release also reported a sharp rise in input costs.

China’s economic recovery accelerated sharply in the first quarter of the year with a record growth of 18.3%, undoing the blow left by last year’s recession caused by COVID-19. Analysts now expect the second largest economy in the world to grow 8.6% in 2021.

The robust economic recovery has outpaced the recovery seen in manufacturing rivals such as India, which is still struggling to contain new waves of the coronavirus outbreak.

“We expect that the recovery in export demand will help factory orders and the May holiday will help the service sector,” Iris Bang, chief economist of Greater China at ING, said in a note, referring to the Chinese business day holiday scheduled to begin on Saturday.

She said demand abroad should also rise as COVID-19 is brought under control in major markets like the United States and Europe, but that the chip shortage could last for several quarters and push up the prices of electronic goods.

The official PMI, which focuses heavily on large and state-owned firms, showed that companies were laying off workers again in April after hiring increased in the previous month for the first time in nearly a year. The employment sub-index fell to 49.6 from 50.1 in March.

A gauge for new export orders stood at 50.4 in April, down from 51.2 the previous month.

The broader economic recovery and increased demand for raw materials drove strong earnings growth for Chinese industrial firms in March, as upstream profits outperformed those in downstream sectors.

The raw material costs sub-index in the official PMI settled at 66.9 in April, down from 69.4 in March, but maintained a fast rate.

In the services sector, activity expanded for the fourteenth consecutive month, but at a slower pace, affected by a sub-index of construction activity. – Reuters