BEIJINGâChinaâs manufacturing activity contracted in September, ending an 18-month expansion that powered the countryâs recovery from the pandemic, with power curbs in hubs threatening further disruption.
Chinaâs manufacturing purchasing managers index fell to 49.6 in September, the National Bureau of Statistics in Beijing said Thursday. That marks the gaugeâs first drop below the 50 mark that separates an expansion of activity from contraction since February 2020, when the metropolis of Wuhan and surrounding Hubei province were shut down to contain the fast-spreading virus.
Economists polled by The Wall Street Journal had expected the official PMI to remain unchanged from Augustâs 50.1 reading. Instead, Thursdayâs lower PMI reading was the latest worrisome sign for the worldâs second-largest economy. Chinaâs strong pandemic recovery has been beset by regional outbreaks, a global semiconductor shortage, port shutdowns and supply-chain disruptions, a widening regulatory campaign against many sectors of the economy, and soaring commodity prices.
More recently, concerns about power outages and a downturn in the real-estate market have added to the list of worries.
an economist with Chinaâs statistics bureau, said Thursday that the official PMIâs decline below the 50 threshold in September was mainly because of weak sentiment among companies in high energy-consuming industries, such as the oil, coal, rubber and plastic industries.
The manufacturing sector has been a driver of Chinaâs strong bounce-back from the pandemic, thanks largely to robust global demand for Chinese-made goods as the rest of the world was ravaged by Covid-19. China was the only major economy to report growth last year.
Below the headline PMI figure, subindexes measuring production, total new orders, new export orders and hiring all slid further below the 50 line in September as both supply and demand in Chinaâs manufacturing sector slowed, the statistics bureau said.
Separately on Thursday, a privately run measure of manufacturing activity that focuses more on smaller factories showed some improvement in overall activity but signaled continued weakness in external demand and production.
That index, the Caixin China purchasing managers index, rose to 50 in September, from 49.2 the previous month, suggesting that activity in the sector neither expanded nor contracted in September, after having been pushed into contractionary territory in August by a wave of coronavirus infections. The Caixin index is compiled by Caixin Media Co. and data research firm
IHS Markit Ltd.
In recent days, economists have grown concerned about power outages that have swept across many Chinese provinces, as coal prices rise and the government ramps up efforts to curb energy consumption and reduce carbon emissions.
More than half of Chinaâs provinces failed to meet the central governmentâs energy-consumption targets in the first half of the year, according to Chinaâs state economic planner. Many localities in these provincesâincluding the economic powerhouses of Jiangsu, Zhejiang and Guangdong provincesâhave strictly limited power usage for businesses and factories.
Coupled with soaring coal prices, power outages in many regions are expected to persist through the end of the year as local governments aim to hit emissions targets, said ANZ economist
Meanwhile, global attention on Chinaâs energy policy in the run-up to a closely watched United Nations climate-change summit in a monthâs time will likely keep the pressure on Chinese policy makers to maintain their stance, she said.
In a sense, the rush to rein in power and production is a result of Chinaâs surprisingly resilient manufacturing and export boom over the past year, which led to increased power consumption and hurt local governmentsâ ability to meet Beijingâs emission-control targets.
If sustained through the end of the year, the power crunch and resulting production cuts in Chinaâs manufacturing hubs could drag down the countryâs gross domestic product by around 1 percentage point in the fourth quarter,
âEconomic growth in the fourth quarter will likely slow further without a change of government policies,â said Zhiwei Zhang, an economist at Shenzhen-based Pinpoint Asset Management.
In addition to the power shortage, the market has begun factoring in rising risks to the Chinese economy after
one of the countryâs biggest and most indebted property developers, failed to make interest payments on its bonds, raising questions about its financial stability.
In the past week, economists at a number of financial institutions, including Nomura,
and S&P Global Ratings, have slashed their forecasts for Chinese economic growth this year, citing the power crunch and the property downturn.
this week also lowered its forecast for Chinese economic growth next year, after having cut its growth forecast for 2021.
September marks the third straight month of weakening economic numbers. After the recovery hit its stride in the first half of the year, the Chinese economy began flashing warning signs in July and August. Thursdayâs PMI figure now suggests that Septemberâs numbers could continue the downward trend, though one positive signal may come from Chinaâs service sector. The sector was derailed last month by an outbreak of the Covid-19 Delta variant, which has since been brought under control.
Chinaâs official nonmanufacturing PMI, which includes the services and construction sectors, bounced back to 53.2 in September, compared with 47.5 in August, according to data released Thursday by Chinaâs statistics bureau. The subindex tracking the services sector improved to 52.4 from 45.2 the previous month, while the subindex measuring construction activity weakened to 57.5 from 60.5, according to the statistics bureau.
While the PMI data showed some recovery in the services sector last month, the cooling construction activity served as another reminder of the plight of Chinaâs real-estate market, which is suffering from a fall in home sales and construction starts.
âThe power shortage and property downturn have amplified market concerns about Chinaâs growth outlook in the near term,â said ANZâs Ms. Wang.
—Grace Zhu contributed to this article.
Write to Jonathan Cheng at firstname.lastname@example.org
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