Chinese factory PMI plunges in November amid price pressures, Covid-19 outbreaks

Activity in China's manufacturing sector slowed unexpectedly last month as rising inflation and Covid-19 in various Chinese regions dampened demand, the results of a closely-followed survey revealed.

The Caixin factory sector Purchasing Managers' Index slipped from an October reading of 50.6 to 40.9 for November.

Economists had forecast that it would be unchanged from the previous month's print.

According to the survey compiler, output levels moved back into positive territory and supply-side constraints eased, namely the power crunch, but inflation and the pandemic hurt domestic demand while the gauge for export orders remained in negative territory for a fourth month in a row, also as a result of Covid-19.

Price pressures did ease - partly - due to the impact of regulations to brake commodity price gains with the cost of steel falling at a steep pace, even as those for chemicals and electronics, as well as freight rates, remained high, Caixin said.

"Still, the gauges of input costs and output prices have remained in expansionary territory for 18 months and 19 months, respectively, indicating that inflationary pressure should not be underestimated," it added.

However, there was still optimism among purchasing managers as regards the outlook for market demand.

"Policymakers should still focus on supporting small and midsize enterprises. They should also pay attention to problems including deteriorating employment, limited growth of household income and weak purchasing power for consumer goods," said Dr. Wang Zhe, senior economist at Caixin Insight Group.

"In addition, the prices of some raw materials remained high. Enterprises are still facing high cost pressures. Policymakers should treat inflation seriously."

Commenting on the survey results, Craig Botham, chief China+ economist at Pantheon Macroeconomics, attributed the divergence in the Caixin PMI versus the 'official' measure, which was published two days before, to the fact that the Caixin survey was tilted more towards the private sector and coastal areas, meaning that it was more in tune with global demand conditions and more market-oriented with regards to employment.

"Besides rising output, the Caixin survey agreed with the official counterpart on the question of inflation," he said.

"It’s slowing. Input and producer price subcomponents point to inflation at its slowest since October 2020. Further, though supply times did lengthen, the incidence of delays was its lowest since March, so we still think supply constraints are easing, at the margin."