Manufacturing activity in China fell for a second consecutive month in October, as the fallout from the country’s housing sector slowdown and energy shortages spill over into the world’s second-largest economy.
China’s manufacturing purchasing managers index was 49.2 in October, below the 50-point threshold that indicates expansion rather than contraction, official data showed on Sunday.
PMI data mark the latest sign of a worsening economic slowdown as weakening real estate construction activity and high commodity prices dampen industrial demand.
The dip in the gauge from 49.6 in September also reflects power supply disruptions affecting factories in the rust belt in northern China to high-tech workshops in Guangzhou and Shenzhen.
The deteriorating economic environment is putting pressure on Xi Jinping and his key planners in Beijing, as the country’s president leads an unprecedented round of economic and social reforms.
Under the banner of promoting “common prosperity,” Xi led an aggressive regulatory overhaul, hitting companies and business leaders in the areas of real estate, technology, games, entertainment and business. ‘education.
But the wave of bad economic data is prompting further calls for a more flexible political approach from Beijing, especially for the real estate sector, which has also been hit by debt problems at developer Evergrande.
The level of contraction in manufacturing activity in October was worse than the 49.7 reading expected by analysts polled by Bloomberg.
Surveys also showed that “inflationary pressures continued to intensify” as price increases accelerated for industrial inputs, including petroleum, coal, chemical materials and metals, analysts noted. by Goldman Sachs.
The figures released by the National Bureau of Statistics on Sunday come two weeks after data showed third-quarter economic growth fell to its slowest pace in a year.
According to analysts at Gavekal Dragonomics, what was an anticipated slowdown in China following the post-Covid boom of the first half of 2020 has turned into a “shocking loss of economic dynamism.”
China’s growth prospects have been clouded by a plethora of difficulties on the supply side. Problems ranging from computer chip shortages to overloaded logistics networks in the early months of the pandemic have since been compounded by disruptions in the electricity supply and sporadic blockages in response to coronavirus outbreaks.
However, analysts at Gavekal said that “the real problem lies on the demand side,” pointing to a worsening real estate slowdown resulting from tight financial and regulatory policies.
“As the real estate sector is the most important driver of cyclical activity, overall growth will weaken further as [the fourth quarter] and in 2022, ”Gavekal analysts said in a research note ahead of the PMI publication.
They said Beijing had “signaled only a marginal easing of its strict real estate policies.”
China’s non-manufacturing PMI slipped to 52.4 from 53.2 the previous month, while the composite index also moved closer to contracting territory, to 50.8 from 51.7.