Factory activity in China unexpectedly shrank amid restrictions on electricity use and soaring prices for goods and parts, raising more concerns about the state of the world’s second-largest economy.
A closely watched survey Thursday showed that Chinese factory activity contracted in September for the first time since the epidemic took hold in February 2020.
The figures showed that production fell thanks to a marked slowdown in high-energy consuming industries, such as factories that process minerals and petroleum products. The sub-indices also highlighted a decline in new orders, employment and new export orders.
Analysts had expected the Manufacturing Purchasing Managers’ Index (PMI) to remain steady at 50.1 in September, but the official result showed the index at 49.6. The 50 point mark separates growth from contraction.
The Chinese economy recovered quickly from the recession caused by the epidemic last year. Although the non-manufacturing PMI provided a welcome bright spot for September, momentum has broadly weakened in recent months, with the sprawling manufacturing sector hurt by rising costs, production bottlenecks and electricity rationing.
Another sign of energy crisis It came late on Wednesday when Russia’s state energy company Interrao said China had asked it to increase electricity supplies to make up for the shortfall at home.
A spokesman said Inter Rao was considering a significant increase in electricity supply, but gave no further details. Russia can supply China with up to 7 billion kWh of energy each year, but last year exports fell by 7.2%.
The sudden downturn in factory activity will affect the economy, which is already facing serious problems in the bloated real estate sector, especially in the form of The Evergrande Giant struggles.
The Shenzhen-based company owes $305 billion to homebuyers, contractors and investors, and the prospect of defaulting on home termination deals and payments on investment products sparked a wave of public protests and saw its stock plummet. Although it calmed some market nerves last week by paying off some domestic debt, it missed interest payments on dollar-denominated bonds, and missed another bond coupon payment deadline on Wednesday night.
The real estate sector accounts for as much as 25% of GDP by some estimates, but the country’s massive tech sector is also facing sustained onslaught from the government in Beijing as it tries to fend off billionaires in their quest for “shared prosperity”.
Leading forecasters such as Goldman Sachs and Nomura have lowered their forecasts for GDP growth.
Economies around the world are grappling with production problems due to supply chain disruptions. UK car production down 27% in August Due to the semiconductor shortage, data on Thursday showed Japanese industrial output fell for the second straight month in August.