China's factory sentiment up as power crunch eases

BEIJING • China's factory sentiment improved in November after a power crunch subsided and price pressures eased, helping to underpin an economy that is being hit by a property slump.

The official manufacturing purchasing managers' index (PMI) rose to 50.1, the first time in three months it exceeded the 50-mark that signals an expansion in production.

The non-manufacturing gauge, which measures activity in the construction and service sectors, fell slightly to 52.3. Both measures beat economists' expectations.

November usually sees a seasonal rebound as there are more working days than in October, when China closes for a week-long national holiday. Energy shortages, which ravaged factory production in September and October, also eased during the month as coal producers boosted output and inventories rose.

"China's manufacturing outlook remains stable as China maintains its advantage in the global manufacturing supply chain amid the ongoing disruptions and shortages," said NatWest Group's China economist Liu Peiqian. "However, the pace of growth may normalise in coming quarters as the demand outlook softens."

National Bureau of Statistics (NBS) senior statistician Zhao Qinghe said recent measures to strengthen energy supply and stabilise prices had seen some impact. The data showed a sharp drop in input prices for manufacturing to 52.9 from 72.1, while output prices plunged to 48.9 from 61.1.

Despite the improvement in the overall PMI, the data highlighted that demand at home and abroad remained sluggish. While the index for new export orders rose to 48.5, it has remained in contraction territory for seven months.

New orders only improved slightly to 49.4 from 48.8.

More than one-third of the surveyed companies said insufficient demand is their most prominent challenge, indicating "the downward pressure on the economy is still very obvious", said researcher Zhang Liqun at the State Council's Development Research Centre, in a statement released by the China Federation of Logistics and Purchasing.

The federation compiles the PMI data alongside the NBS.

Mr Zhang said the priority now is to expand domestic demand by letting government investment play a better role in boosting corporate investment, employment and household consumption.

The economy has been buffeted this year by a housing market crisis and frequent Covid-19 outbreaks, both of them risks that are weighing on next year's outlook as well. Several economists expect growth to slow to under 5 per cent in 2022, with more fiscal and monetary support likely to follow.

Policymakers are trying to moderate the sharp downturn in the property market, while providing targeted support to areas such as small businesses and green technology. More clues on policy action will likely come when the Communist Party holds its Central Economic Work Conference later this month.

The PMI survey showed a pick-up in construction to 59.1 from 56.9, which suggests "activity seems to be reactivated, thanks to government relaxation measures supporting property projects", said Mr Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group.

A set of early indicators showed China's economy continued to slow in November with car and homes sales dropping again as the housing market crisis dragged on. Strong export demand ahead of the year-end holiday season partly helped to offset the property slump.

BLOOMBERG