China factory activity unexpectedly shrinks, services recover

September 30, 2021

BEIJING (Reuters) -China’s factory activity unexpectedly shrank in September as high raw material prices and power cuts pressured manufacturers in the world’s second-largest economy, while the services sector returned to expansion after COVID-19 outbreaks receded.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.6 in September versus 50.1 in August, data from the National Bureau of Statistics (NBS) showed on Thursday, slipping into contraction for the first time since February 2020.

Analysts in a Reuters poll had expected the index to remain steady at 50.1, unchanged from the previous month.

The 50-point mark separates growth from contraction.

China’s economy rapidly recovered from a pandemic-induced slump last year, but momentum has weakened in recent months, with the vast manufacturing sector facing heightened costs, production bottlenecks, and more recently, electricity rationing.

A shortage of coal, tougher emissions standards and strong demand from manufacturers and industry pushed coal prices to record highs and triggered widespread curbs on electricity usage in at least 20 provinces and regions.

Higher raw material prices, especially of metals and semiconductors, have also pressured profits of manufacturers. Earnings at China’s industrial firms in August slowed for the sixth straight month.

On a more sanguine note, the official non-manufacturing PMI in September was at 53.2, bouncing back from 47.5 in August, data from the NBS showed.

Last month, COVID-19-related restrictions drove services sector activity into sharp contraction for the first time since the height of the pandemic last year.

The official September composite PMI, which includes both manufacturing and services activity, stood at 51.7 versus 48.9 in August.

(Reporting by Ryan Woo and Gabriel Crossley; Editing by Tom Hogue and Ana Nicolaci da Costa)

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