China's Factory Activity Contracts In September

China's factory activity unexpectedly shrank in September as high raw material prices and power cuts pressured manufacturers in the world's second-largest economy, while the services sector returned to expansion as Covid-19 outbreaks receded.

The official manufacturing Purchasing Manager's Index (PMI) was at 49.6 in September versus 50.1 in August, data from the National Bureau of Statistics (NBS) showed on Thursday, slipping into contraction for the first time since February 2020.

The 50-point mark separates growth from contraction.

China's economy rapidly recovered from a pandemic-induced slump last year, but momentum has weakened in recent months, with its sprawling manufacturing sector hit by rising costs, production bottlenecks and more recently electricity rationing.

Reflecting the production pressures, a sub-index for factory output contracted in September for the first time since February last year, and stood at 49.6 versus 50.1 a month earlier.

"In September, due to factors such as low volumes of business at high energy-consuming industries, the manufacturing PMI fell below the critical point," said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.

"The two indexes of high energy-consuming industries such as petroleum, coal and other fuel processing, chemical fibre and rubber and plastic products, ferrous metal smelting and rolling processing are both lower than 45.0, indicating a significant drop in supply and demand."

A shortage of coal, tougher emissions standards and strong demand from manufacturers and industry pushed coal prices to record highs and triggered widespread curbs on electricity usage in at least 20 provinces and regions.

Higher raw material prices, especially of metals and semiconductors, have also pressured profits of manufacturers. (Reuters)