Chinese factories increase activity at slowest pace in nine months

Official PMIs were affected by holiday slowdown but concern remains that recovery is waning

Chinese factories increase activity at slowest pace in nine months
Getting busier. Photo: Reuters

(ATF) China’s factories cranked even higher volumes of products in February, but the rate of increase was the slowest since May, raising concern the nation’s recovery is more fragile than thought. 

The official manufacturing Purchasing Manager's Index (PMI) fell to 50.6 from 51.3 in January, data from the National Bureau of Statistics (NBS) showed on Sunday, remaining above the 50-point mark that separates growth from contraction.

Analysts had expected it to decline to 51.1. Analysts cautioned that the Lunar New Year festival, usually slows production.

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"Lunar New Year fell in mid-February this year, and the holiday factor showed a greater impact on the production and operations of enterprises this month," said NBS senior statistician Zhao Qinghe.

Zhao added that both the new export order index and import order index were in contraction, affected by slower production and purchasing activities during the festive period.

China is the only major economy to have registered growth last year, despite posting a first-quarter drop in GDP, the first contraction in decades. The slide came as shutdowns to contain coronavirus, which first took hold in the Chinese city of Wuhan, left industry silent for weeks.  

Festival slowdown

Chinese factory activity normally goes dormant during the Lunar New Year break as workers return to their home towns. This year, the government appealed to workers to remain local to curb the spread of Covid-19.

Generally, China's economic recovery has been gathering pace due to robust exports, pent-up demand and government stimulus.

The official PMI, which largely focuses on big and state-owned firms, showed the sub-index for new export orders was 48.8 in February compared with 50.2 in January, slipping back into contraction after months boosted by overseas demand.

A sub-index for activity among small firms stood at 48.3 in February versus 49.4 a month earlier.

A sub-index for employment in the official PMI stood at 48.1 in February, down from January's 48.4 as firms laid off more workers and at a faster pace.

China's factory gate prices rose on year in January for the first time in a year, as months of strong manufacturing growth pushed raw material costs higher.

China eked out 2.3% economic growth last year. This year, the government may avoid setting a growth target for fear of provincial economies feeling pressured to take on more debt, policy sources previously told Reuters.

China will reinforce policy support for foreign trade and ensure the smooth operation of supply chains, its new commerce minister said earlier this week.

In the services sector, activity expanded for the 11th consecutive month but at a slower pace.

  • Reporting by Reuters and AFP