China Factory Activity Falls As Power Cuts Hit Private Firms

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(Bloomberg) -- China's factory activity contracted in August, according to a private survey suggesting that fallout from power shortages and Covid outbreaks is hitting smaller firms alongside large and state-owned ones.

The Caixin Manufacturing Purchasing Managers' Index fell to 49.5 last month from 50.4 in July, according to a statement Thursday from Caixin and S&P Global. That's lower than the median estimate of 50 in a Bloomberg poll of economists.

It's the first time the gauge has fallen below 50 -- the line separating expansion from contraction -- since May.

The reading was in line with the official survey released Wednesday, which also showed factory activity contracting in August. It was the second straight month of contraction for that index. The Caixin index tracks smaller, private and export-oriented firms, while the official PMI mostly tracks larger, state-owned enterprises.

“The Covid-19 flare-ups, the extreme heat wave and restricted power usage resulted in a slight deterioration in overall business conditions in the manufacturing sector,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data.

“In the face of adverse factors such as recurring Covid-19 cases and natural disasters, there needs to be further subsidies and assistance for poor and low-income groups amid a sluggish job market and shrinking consumer demand,” said Wang.

What Bloomberg Economics Says...

A decline in China's Caixin PMI into contraction in August added to evidence that the manufacturing sector's recovery lost momentum. The weaker-than-expected reading reflected multiple shocks -- from Covid-19 outbreaks and a power shortage to the property rout. The export-oriented survey indicated growth in supply lost speed quickly and demand shrank. A weakening global outlook points to further weakness ahead.

Chang Shu and David Qu

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The world's second-largest economy is experiencing mounting risks from Covid outbreaks and lockdowns as cases spread to every mainland province. The property sector has also continued to struggle with low confidence from homebuyers and developers, while a historic drought has caused power shortages.

The Caixin PMI's new export order sub-gauge also fell into contraction for the first time in three months, according to the data. That indicated foreign demand -- which has been a major pillar of support for the Chinese economy during the pandemic -- may be shrinking.

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