Chip and container shortfalls drag China's factory output back 

The country’s post-pandemic production surge lost some of its pace last month with supply bottlenecks and dampened overseas demand to blame 

by Sean OMeara
Chip and container shortfalls drag China's factory output back
China's official manufacturing purchasing managers' index (PMI) fell to 51.1 in April from 51.9 in March. Photo: Reuters

Shortages in shipping containers and semiconductor chips weighed down China’s production lines in April.

The country’s factory activity growth slowed and came up short on forecasts as logistics issues – and costs – and the continued global chip supplies pinch, as well as slow-to-improve overseas demand, all combined to drag down output.

The country's official manufacturing purchasing managers' index (PMI) fell to 51.1 in April from 51.9 in March, data from the national Bureau of Statistics (NBS) showed on Friday.

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It remained above the 50-point mark that separates growth from contraction on a monthly basis but was below the 51.7 expected.

"Some surveyed companies report that problems such as chip shortages, problems in international logistics, a shortage of containers, and rising freight rates are still severe," NBS statistician Zhao Qinghe said in a statement accompanying the official PMI.

That contrasted with a private-sector survey, also released on Friday, which showed factory activity in April expanded at the fastest pace in four months although businesses in that release also reported a sharp surge in input costs.

"With the economy already above its pre-virus trend and the policy stance less supportive, growth momentum will wane this year," analysts from Capital Economics said in a note on the PMI.

COVID HIT

China's economic recovery quickened sharply in the first quarter of the year with record growth of 18.3%, shaking off the hit from last year's Covid-19-induced slump. Analysts now expect the world's second-largest economy to grow 8.6% in 2021.

The robust economic recovery has outpaced rebounds seen in manufacturing competitors such as India, which are still struggling to contain new waves of coronavirus outbreaks.

Policymakers in Beijing have signalled they are keen to avoid sudden policy changes that could derail the recovery.

HOLIDAY HOPE

"We expect that an export demand recovery will help factory orders and that the May holiday will help the services sector," said Iris Pang, chief economist for Greater China at ING, in a note.

Overseas demand should also pick up as Covid-19 is brought under control in major markets like the United States and Europe, she said, but chip shortages could continue for several quarters and push up prices of electronic goods.

From delayed car deliveries to a supply shortfall in home appliances, businesses and consumers across the globe are facing the brunt of an unprecedented shortage in semiconductor microchips, made worse by sanctions against Chinese tech companies.

  • Reporting by Reuters

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PMI Factories NBS Containers Chips Microchips semiconductors Freight