Prospects for Chinese factories improve again, services slow

Photographer: Qilai Shen / Bloomberg

An official gauge of China’s manufacturing output slid for a second month in January, while activity in the services sector slowed to its lowest level since March.

• The official index of purchasing managers in the manufacturing sector fell to 51.3 from 51.9 in December, according to data released Sunday by the National Bureau of Statistics.
• The non-manufacturing indicator fell to 52.4 from 55.7 in January. It was the biggest drop since February last year, when China locked down to contain Covid-19. Readings above 50 indicate an expansion in production from the previous month.

Key ideas

• China’s recovery from the pandemic gained momentum towards the end of 2020, fueled by a boom in exports of medical and electronics products.
• Economists expected some weakness in PMI ahead of the Lunar New Year holiday in February. Besides a seasonal drop in production, strict travel restrictions and virus control measures following the recent outbreaks of Covid-19 in China mean that many workers will not make the annual trip home, which will likely result in lower spending on gifts and catering.
• “These measures will hurt the recovery in the service sector, especially in the hospitality sector,” economists at Nomura Holdings Inc. under the leadership of Lu Ting wrote in a report ahead of the data release. However, they “could give a little boost to industrial production and construction in southern China, because workers would stay in the workplace.”
• Overall, the new controls will slow economic growth in the first quarter, they wrote.

Have more

• A sub-index of new export orders for factories fell to 50.2, while one for new orders was lower at 52.3
• A sub-index of manufacturing employment fell to 48.4, while non-manufacturing employment slowed to 47.8

– With the help of James Mayger and Lin Zhu

(Updates with chart, comments from economists, and more details throughout.)