The number of coronavirus infections in China has surged, and the manufacturing industry contracted sharply in December

A worker wearing a mask in Hangzhou, Zhejiang Province, works on a production line that produces steel rings for bicycle wheels. (2 March 2020)

WASHINGTON — Factory activity in China contracted for the third straight month in December and at its fastest pace in nearly three years as a virus infection swept production lines across the country after Beijing abruptly lifted coronavirus measures.

China’s official purchasing managers’ index (PMI) fell to 47.0 in December from 48.0 in November, China’s National Bureau of Statistics reported on Saturday. Economists polled by Reuters had expected a PMI of 48.0. PMI values are usually marked by 50 as the dividing point between economic strength and weakness, or “boom-bust line”, with anything below 50 indicating contraction and a value above 50 indicating expansion.

This is the largest drop since the early days of the pandemic in February 2020.

The data provides the first official data for the manufacturing sector after China lifted the world’s strictest coronavirus restrictions in early December. Airfinity, a British health data firm, estimates that the cumulative number of infections in China in December could reach 18.6 million.

Analysts say a surge in infections could lead to temporary labor shortages and exacerbate supply chain disruptions. Reuters reported on Wednesday that Tesla plans to implement production cuts at its Shanghai plant starting in January, extending the cuts that began this month to next year.

Against the backdrop of rising interest rates, inflation, and the ongoing war in Ukraine, growing fears of a global recession have led to weaker external demand, which could further slow China’s exports, hurt its vast manufacturing sector and hinder economic recovery.

“Most of the factories I know of are well below the number of orders for this time next year. Cameron Johnson, a partner at Tidalwave Solutions, a supply chain consultancy, said: “Many of the factories I’ve worked with are 50 percent open, some below 20 percent.”

“So while China is opening up, manufacturing will still slow because the rest of the world is slowing down.” There will be workers at the factory, but they will have no orders. ”

According to China’s National Bureau of Statistics, 56.3 percent of manufacturers surveyed said they were significantly affected by the pandemic in December, up 15.5 percentage points from the previous month, although most also said they expected the situation to gradually improve.

Hope for recovery

Zhou Hao, the chief economist of Guotai Junan International, said: “Although (manufacturing PMI) is lower than expected, it is actually difficult for analysts to provide reasonable forecasts given the virus uncertainty over the past month.”

“Overall, we believe the worst of the Chinese economy is over and a strong economic recovery is coming.”

China’s banking and insurance regulator pledged this week to increase financial support for small and private businesses in the catering and tourism sectors hit hard by the coronavirus pandemic, stressing that a recovery in consumption would be a top priority.

The non-manufacturing PMI, which measures activity in the service sector, fell to 41.6 from 46.7 in November, also the lowest level since February 2020, according to China’s National Bureau of Statistics.

The official composite PMI for integrated manufacturing and services fell to 42.6 from 47.1.

Mark Williams, the chief Asia economist at Capital Economics, said: “For the service sector, the weeks leading up to the Chinese New Year will remain challenging as people are reluctant to go out, spend more money, and fear infection.”

“But when people return from the Chinese New Year holiday, the outlook should become clear – the number of infections will fall, and a large proportion of people will have recently contracted the virus and feel that they have some level of immunity.”

(This article is based on a Reuters report.)