China Manufacturing Sector Shrinks Slightly In August

China’s manufacturing sector contracted slightly in August, driven by a renewed drop in output and a further fall in new work, survey results from IHS Markit showed on Wednesday.

The Caixin factory Purchasing Managers’ Index fell to 49.2 in August from 50.3 in July. A score below 50 indicates contraction in the sector.

It was the first time that business conditions had worsened since April 2020, with the index dipping to its lowest level for a year-and-a-half.

The official PMI data released on Tuesday showed that the manufacturing PMI came in at 50.1 in August, down from 50.4 in the previous month.

Due to the recent uptick in COVID-19 cases and subsequent restrictions, producers reported the first fall in output since February 2020, survey data from Markit revealed. Total new work fell for the second month in a row and, though only mild, the reduction was the fastest seen since April 2020.

Companies registered a fractional fall in employment as firms reduced their staff numbers due to the fall in output requirements. Consequently, backlogs of work increased again, and at the fastest rate since May.

Higher raw material prices and greater transportation costs drove a further marked rise in overall input prices. The rate of cost inflation picked up for the first time in three months. At the same time, factory gate prices rose only moderately, despite the rate of increase picking up since July.

Business confidence remained strong overall in August but the overall degree of optimism was unchanged from July’s 15-month low.

Official economic indicators for July were worse than the market expected, indicating mounting downward pressure on economic growth, Wang Zhe, a senior economist at Caixin Insight Group said. Authorities need to take a holistic view and balance containing Covid-19, stabilizing the job market, and maintaining stability in supply and prices.

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