China Manufacturing Sector Shrinks Moderately

China’s manufacturing sector shrank at a slower pace in January as the downturns in output and new orders softened, survey results from S&P Global revealed Wednesday.

The Caixin manufacturing Purchasing Managers’ Index rose to 49.2 from 49.0 in December.

However, the score has remained below the neutral 50.0 for the sixth consecutive month suggesting contraction. Moreover, the reading was below economists’ forecast of 49.5.

The official PMI data released Tuesday showed that the manufacturing sector expanded for the first time in four months in January. The corresponding index climbed to 50.1 from 47.0 in December. The non-manufacturing PMI advanced sharply to 54.4 from 41.6 a month ago.

The relative improvement was partially due to the softer decrease in production, S&P said. Output dropped at a marginal pace as firms reported reduced pressure on operations after the easing of containment measures.

However, demand conditions remained relatively subdued but the pace of decline eased since December. New orders from abroad also contracted on weaker global demand.

Purchasing activity dropped at the slowest pace in three months. Inventories of both pre- and post-production items declined at quicker rates as firms often made greater use of current stocks in light of muted customer demand.

Employment decreased further in January as staff resignations and absences due to COVID-19 illness weighed on headcounts. As a result, there was a renewed upturn in backlogs of work.

On the price front, the survey showed that input costs increased at the fastest pace in seven months. On the other hand, selling prices dropped slightly as firms lowered prices to stimulate sales.

Business confidence improved the most since April 2021 as manufacturers expect operations to return to normal.

“There is still uncertainty in how the pandemic will develop, so full preparation should be made to deal with the next wave of the virus,” Wang Zhe, a senior economist at Caixin Insight Group said. “China will still need to effectively coordinate pandemic containment with economic and social development.”

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