A government survey of manufacturing activity increased to 50.1 in November from 49.2 in October, according to data released by the National Bureau of Statistics (NBS) on Tuesday. It was the first reading above 50 — indicating expansion rather than contraction — in three months. It was also the first time since March that the index increased over the prior month.
Beijing on Tuesday attributed the improvement to “recent policy measures” that have strengthened energy supply and stabilized soaring costs.
“In November, power shortages eased and prices of some raw materials dropped significantly,” said Zhao Qinghe, senior statistician for NBS, in a statement.
But while the official numbers are promising, data from a private survey this week does not paint a robust picture. The Caixin PMI survey said Wednesday that China’s manufacturing industry for November slipped into contraction territory, falling to 49.9 from October’s 50.6. A reading below 50 indicates contraction rather than expansion.
The discrepancy between the two surveys can be attributed to methodology — Caixin looked at small and private companies, whereas the government focused on larger ones.
Wang Zhe, senior economist at Caixin Insight Group, highlighted the problems facing smaller businesses in China, including deteriorating employment and high raw material costs. He added in a statement accompanying the data that policymakers “should still focus on supporting small and midsize enterprises.”
Even so, the surveys taken together “still suggest that industrial output rebounded in November as power shortages abated,” according to a report from Sheana Yue, assistant economist for Capital Economics.
The result was notable. China — which uses more than half the world’s coal supply and is already the largest emitter of carbon — set a new daily record for coal production in mid-November, according to statistics from the National Development and Reform Commission (NDRC).
The agency’s “strong interventions” mitigated the “overall power shortage” and eased cost pressures on some industries, analysts from Citi wrote in a Tuesday research report. The power woes had pushed up the cost of aluminum, steel and other raw materials, rippling through industries like carmaking and construction.
Stress still to come?
The Citi analysts said that the production of raw materials — which causes high levels of air pollution — may be limited in northern China as the government tries to “ensure blue skies for [the] Beijing Winter Olympics.”
Tuesday’s data showed while new orders received by factories rebounded somewhat, that gauge still did not enter expansion territory, suggesting that domestic demand remains weak.
“The major challenge now is the significant pressure that the property downturn puts on the aggregate demand,” the Citi analysts said. Real estate — and related industries — account for as much as 30% of Chinese GDP.
Tuesday’s data also showed that non-manufacturing PMI, which measures the performance of services and construction industries, reached 52.3 in November, slightly weaker than October’s 52.4.
Analysts say the Omicron variant might be a concern going forward, especially for the services industry.
China, though, has long pursued a “zero Covid” approach, and maintains what are already among the strictest border restrictions in the world.
“Looking ahead, most of the weakness in services should reverse in December unless — obviously a big caveat with the emergence of Omicron — there are new outbreaks,” wrote economists with Capital Economics in a Tuesday research report. “In that case, the authorities would turn to more stringent controls to contain it.”