China's factory activity expands at slower pace in August

BEIJING (REUTERS) – China’s factory activity expanded at a slower pace in August, while the services sector slumped into contraction, as coronavirus-related restrictions and high raw material prices pressure businesses in the world’s second largest economy.

The official manufacturing Purchasing Manager’s Index (PMI) was 50.1 in August from 50.4 in July, data from the National Bureau of Statistics (NBS) showed on Tuesday.

The 50-point mark separates growth from contraction.

Analysts polled by Reuters had expected it to slip to 50.2.

China staged an impressive recovery from a coronavirus-battered slump, but growth has recently shown signs of losing steam due to domestic Covid-19 outbreaks, slowing exports, tighter measures to tame hot property prices and a campaign to reduce carbon emissions.

In a worrying sign for China’s slow consumption recovery, a gauge of activity for the services sector in August slipped into sharp contraction for the first time since the height of the pandemic in February last year.

The official non-manufacturing PMI in August was 47.5, well down from July’s 53.3, data from the National Bureau of Statistics (NBS) showed.

To bolster the economy, the People’s Bank of China (PBOC) cut the amount of cash banks must hold as reserves in mid July, releasing around 1 trillion yuan (S$6.7 trillion) in long-term liquidity.

Many analysts expect another cut later in the year.

China’s latest coronavirus outbreaks appear to have been largely brought under control, with zero locally transmitted cases reported on Aug 30, for the third day in a row.

But it spurred authorities across the country to impose measures including mass testing for millions of people as well as travel restrictions of varying degrees and port shutdowns.

Meishan terminal at China’s Ningbo port resumed operations in late August after shutting down for two weeks due to a Covid-19 case. The closure caused logjams at ports across the country’s coastal regions and further strained global supply chains amid a resurgence of consumer spending and a shortage of container vessels.

Higher raw material prices, especially of metals and semiconductors, have also pressured profits. Earnings at China’s industrial firms in July slowed for the fifth straight month.

The official August composite PMI, which includes both manufacturing and services activity, fell to 48.9 from July’s 52.4.

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