Production and services contract in China for the first time since 2020



A worker wearing a face mask works on a production line making steel bicycle rims at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province.


© Reuters/China Daily CDIC
A worker wearing a face mask works on a production line making steel bicycle rims at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province.

BEIJING, March 31 (Reuters) – Chinese manufacturing and services activity contracted simultaneously in March for the first time since the height of the country’s COVID-19 outbreak in 2020, making more urgent political intervention to stabilize the economy.

The official Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said on Thursday, while the non-manufacturing PMI fell to 48.4 from 51.6 in February.

The last time both PMIs were simultaneously below the 50-point mark that separates contraction from growth was in February 2020, as authorities scrambled to stop the spread of the coronavirus, first detected in the central city. China from Wuhan.

The world’s second-largest economy accelerated in January-February, with some key indicators beating expectations, but is now at risk of a sharp slowdown as authorities restrict output and mobility in COVID-hit cities including Shanghai. and Shenzhen.

“Recently, clusters of epidemic outbreaks have occurred in many places in China, and along with a significant increase in global geopolitical instability, the production and operation of Chinese enterprises have been affected,” said Zhao Qinghe, chief statistician at the NBS.

The COVID-19 lockdown in Shanghai has disrupted auto production in recent days, with two major suppliers joining Tesla in closing their plants to comply with measures to control the spread of the coronavirus.

“The PMI weakened as omicron outbreaks in many Chinese cities led to lockdowns and disruptions in industrial production,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“As Shanghai’s lockdown only occurred at the end of March, economic activities are likely to slow down further in April.”

The production sub-index fell below the 50-point mark for the first time since October, to 49.5, indicating a contraction. The new orders indicator was also in negative territory.

“Due to the epidemic outbreaks, some enterprises in some areas temporarily reduced or stopped production, which also affected the production and normal operation of enterprises in the production and distribution chain,” Zhao said.

Some companies also saw overseas orders being canceled or reduced due to geopolitical uncertainties, Zhao said.

Weakening output and demand accelerated the contraction in factory jobs, with the employment sub-index slipping to 48.6 in March, the lowest since February 2021.

THE WORST SINCE WUHAN

“The PMIs probably understate the impact on activity last month,” said Julian Evans-Pritchard, China economist at Capital Economics.

“The services index remained above the low of 45.2 reached last August during the delta wave. This is probably because the survey was conducted before the worst disruptions.”

To cushion the impact of the new COVID-19 lockdowns, the authorities have unveiled support measures for businesses, such as rent exemptions for some small businesses in the service sector.

On Wednesday, the government said it will put in place policies to stabilize the economy as soon as possible amid mounting pressures.

The central bank, which left its benchmark interest rate for lending to businesses and households unchanged in March, is expected to cut rates and lower reserve requirements for banks as downward economic pressures mount. according to analysts.

China’s official composite PMI, which combines manufacturing and services, stood at 48.8 in March, down from 51.2 in February.

The Composite PMI was at its second lowest reading on record since February 2020, when the initial COVID outbreak caused the index to plunge to 28.9.

“This suggests that the economy is contracting at its fastest rate since the height of the initial COVID-19 outbreak in February 2020,” Evans-Pritchard said.

(Reporting by Ellen Zhang, Stella Qiu, and Ryan Woo; editing by Sam Holmes and Bradley Perrett; translation by Flora Gómez)

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