Surprisingly strong exports have helped Chinese manufacturers bounce back from COVID-19, but rising infections are hurting the future.
Chinese factory activity increased in December as strong export demand fueled the recovery of the world’s second-largest economy from the year’s coronavirus crisis, although rising labor and labor costs transport has slowed the pace of growth.
The official purchasing manager index in the manufacturing sector (PMI) fell to 51.9 in December from 52.1 in November, according to data from the National Bureau of Statistics (NBS) on Thursday.
The index remained above the 50 point mark that separates growth from contraction, but was slightly below the level of 52.0 predicted in a Reuters analyst poll.
China’s vast industrial sector has seen an impressive recovery after severe lockdowns in early 2020 to control the spread of the coronavirus with surprisingly strong exports.
The economy is expected to grow by around 2 percent throughout the year – the weakest pace in more than 30 years, but much stronger than other major economies still struggling to contain infections.
However, stricter coronavirus control measures among many of its major trading partners in the West and recent domestic infections could hurt industrial demand, weighing on the recovery.
The official PMI, which focuses largely on large corporations and state-owned enterprises, showed the new export orders sub-index to be 51.3 in December, after 51.5 a month earlier.
But a factory price index has risen sharply, reflecting strong overseas demand as well as rising shipping costs, even as some export markets are blocked, said Iris Pang, chief economist for Greater China at ING.
Economic indicators ranging from trade to producer prices all point to a further rebound in the industrial sector.
A sub-index of small business activity stood at 48.8 in December, down sharply from 50.1 in November and falling back to contraction.
Pressure on small businesses
Zhao Qinghe, an official at NBS, said in a statement accompanying the data release that small businesses were under pressure from rising costs of labor, raw materials and distribution.
“Small manufacturers are also suffering from the problem of hiring labor, as the service sector in China competes for workers,” Pang said.
An employment sub-index in the official PMI stood at 49.6 in December, up slightly from 49.5 in November.
China also saw a strong improvement in retail sales thanks to strong demand for automobiles and communications equipment.
In the service sector, activity grew for the 10th consecutive month, but at a somewhat slower pace. An indicator of construction activity increased at a faster pace.
Ahead of the peak travel season in China, the capital Beijing has imposed lockdowns on some areas infected with COVID, the first since the last coronavirus outbreak in June and July.