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China's factory activity contracts unexpectedly in July as COVID flares up

Economic Indicators Jul 31, 2022 02:20AM ET
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© Reuters. FILE PHOTO: Employees work on the production line of vehicle components during a government-organised media tour to a factory of German engineering group Voith, following the coronavirus disease (COVID-19) outbreak, in Shanghai, China July 21, 2022. REU

BEIJING (Reuters) -China's factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns the month before, as fresh virus flare-ups and a darkening global outlook weighed on demand, a survey showed on Sunday.

The official manufacturing purchasing managers' Index (PMI) fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics (NBS) said, below the 50-point mark that separates contraction from growth and the lowest in three months.

Analysts polled by Reuters had expected a reading of 50.4.

"The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation," NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

Continued contraction in the energy-intensive industries, such as petrol, coking coal and ferrous metals, contributed most to pulling down the July manufacturing PMI, he said.

Sub-indexes for output and new orders fell by 3 points and about 2 points in July, respectively, while the employment sub-index edged down by 0.1 point.

Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle (NYSE:JLL) Inc, said in a research note. "Q3 growth may face greater challenges than expected, as recovery is slow and fragile," he added.

The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

China's economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signalled their strict zero-COVID policy would remain a top priority.

Policymakers are prepared to miss their GDP growth target of "around 5.5%" for this year, state media reported after a high-level meeting of the ruling Communist Party. Beijing's decision to drop mention of the target has doused speculation that the authorities would roll out massive stimulus measures, as they often have in previous downturns.

Capital Economics says that policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China's economic recovery more drawn-out. FALTERING RECOVERY After a rebound in June, the recovery in the world's second-biggest economy has faltered as COVID flare-ups led to tightening curbs on activity in some cities, while the once mighty property market lurches from crisis to crisis.

Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.

China's southern megacity of Shenzhen has vowed to "mobilise all resources" to curb a slowly spreading COVID outbreak, ordering strict implementation of testing and temperature checks, and lockdowns for COVID-hit buildings.

The port city of Tianjin, home to factories linked to Boeing (NYSE:BA) and Volkswagen (ETR:VOWG_p), and other areas tightened curbs this month to fight new outbreaks.

According to World Economics, the lockdown measures had some impact on 41% of Chinese companies in July, though its index of manufacturing business confidence rose significantly from 50.2 in June to 51.7 in July.

China's factory activity contracts unexpectedly in July as COVID flares up
 

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Comments (6)
CS Greer
CSGreer Jul 31, 2022 11:33AM ET
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"Unexpectedly" ???? China has been doing lockdowns for months.
Sien Huat Hii
Sien Huat Hii Jul 31, 2022 7:17AM ET
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make sure you flip around and throw all the stuffs in your house that made in China..oh ya, maybe your Tesla too..
Brad Albright
Brad Albright Jul 31, 2022 7:17AM ET
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Throw all the stuffs where?
Ronald Johnson
Ronald Johnson Jul 31, 2022 7:17AM ET
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LOL
Peter Andersen
Peter Andersen Jul 31, 2022 5:55AM ET
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Stop buying Chinese made in china
Jamie An
Jamie An Jul 31, 2022 5:26AM ET
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Inflation is very strong enemy. J Powell sould be hawkish enough until it will be k.o. But he threw several jabs and pretend already win the game. No. Inflation will knock US and Fomc out.
Martijn WN
Speculeerbeer Jul 31, 2022 4:42AM ET
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The way China handles covid is just absolutely ridiculous.
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Peter Andersen
Peter Andersen Jul 31, 2022 4:42AM ET
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Yeah we can help stop buying made in china ,jinxing is a diktator destroying people who will speak for freedom like Russian the little fat rat is his lover
Peter Andersen
Peter Andersen Jul 31, 2022 4:42AM ET
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China is crazy people don’t wanted in Europa corruption
Peter Andersen
Peter Andersen Jul 31, 2022 4:42AM ET
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Stay in china slavery
Peter Andersen
Peter Andersen Jul 31, 2022 4:42AM ET
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Edward Chong go back to communism by by
Peter Andersen
Peter Andersen Jul 31, 2022 4:42AM ET
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Stay out off USA
Trumpster Rocks
Trumpster Rocks Jul 31, 2022 1:28AM ET
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Lol, sure it is..just in time for our Mid term elections..why do you think joe is donating 1 milliion barrels of our Oil reseves to China right now?
Peter Andersen
Peter Andersen Jul 31, 2022 1:28AM ET
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