China Factory Activity Grows but Power Shortage, Rising Costs Hamper Production

  • Economic Indicators News
China Factory Activity Grows but Power Shortage, Rising Costs Hamper Production
Credit: © Reuters.

By Gina Lee – Chinese factory activity grew at its fastest pace in four months in October, according to a business survey. Stronger demand contributed to the growth, but power shortages and rising costs hampered production.

The Caixin manufacturing purchasing managers index (PMI) was at 50.6, higher than the 50-figure in both forecasts prepared by and reported during the previous month. The index was at its highest level since June 2021 and above the 50-mark indicating growth.

Data released by the National Bureau of Statistics on Sunday showed that the manufacturing and non-manufacturing PMIs were at a lower-than-expected 49.2 and 52.4 respectively in October.

However, growth in China’s manufacturing sector has slowed down thanks to COVID-19 outbreaks, higher costs, supply-chain bottlenecks, and power rationing. The rationing also led to a power crunch, thanks to a coal shortage, tougher emissions standards, and strong industrial demand, further denting factory output.

"To sum up, manufacturing recovered slightly in October from the previous month. But downward pressure on economic growth continued," Caixin Insight Group senior economist Wang Zhe told Reuters.

"Supply strains became the paramount factor affecting the economy. Shortages of raw materials and soaring commodity prices, combined with electricity supply problems, created strong constraints for manufacturers and disrupted supply chains."

In an effort to provide some relief, China's cabinet said on Wednesday that the government will defer some taxes for manufacturers for three months from November 2021.

The latest wave of COVID-19 outbreaks in China since late October 2021 could also deal a fresh blow to economic activity, warned Wang. "It is critical to balance the goals of controlling the outbreaks and maintaining normal economic activity," he said.

Meanwhile, the Caixin services PMI is due on Wednesday.

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