Manufacturing Purchasing Managers’ Index (PMI), an indicator of economic sentiment among Chinese manufacturing companies, fell below the critical level for the first time in 19 months. Caixin PMI, which measures how private manufacturers perceive the economy, rebounded slightly, but reached a critical point.
Due to the further spread of Covid-19, flooding and power shortages, downward pressure on the economy is increasing. Major economic forecasting agencies are lowering their economic growth forecasts for China year-on-year.
On September 30, the National Bureau of Statistics reported a PMI of 49.6. This figure is 0.5 points lower than the previous month’s (50.1). It is the first time the figure has fallen below 50 since early last year, when the Covid-19 outbreak was just beginning. The forecast for the market was also 50.1.
Chinese Manufacturing PMI surveys 700 manufacturing companies in the country on five ranking indicators: new orders, production, shipments, inventories, and employment. When the index is greater than 50, manufacturing companies anticipate the economy expanding, and vice versa. Hence, dropping below 50 indicates a pessimistic outlook.
Power shortage in China
PMI fell mainly due to restrictions on electricity use, which are essential for manufacturing. According to Zhao Qinghe, senior statistician at the National Bureau of Statistics’ Service Industry Research Center, “The September manufacturing PMI fell below the critical point due to the sluggish economy in energy-intensive sectors.”
Meanwhile, the manufacturing employment index fell to 49 from 50 the previous month.
As Zhao Qinghe stated, “When we look at the main raw material price index, we find that total purchase costs are rising, with all industries having passed the critical point”.
The non-manufacturing PMI, a measure of the service sector, rose to 53.2 from 47.5 last month.
Caixin says “demand is improving for the second consecutive month, but it is also contracting for the same reason,”. “Quarantine control is preventing logistics and home consumption,” Wang Zhe, chief economist at the think tank, noted. “The economy is still under downward pressure.”