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China’s manufacturing activity growth slows due to supply bottlenecks and low demand

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BEIJING – China’s manufacturing activity growth slowed and fell short of forecasts in April as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum.

The country’s official manufacturing purchasing managers index (PMI) fell to 51.1 in April from 51.9 in March, data from the National Bureau of Statistics (NBS) showed on Friday.

It remained above the 50-point mark that separates growth from contraction on a monthly basis, but was below the 51.7 expected in a Reuters analyst survey.

“Some companies surveyed report that problems such as chip shortages, problems in international logistics, container shortages and rising freight rates remain serious,” said NBS statistician Zhao Qinghe in a statement accompanying the PMI. official.

That contrasts with a private sector survey, also released on Friday, which showed that factory activity in April expanded at the fastest pace in four months, although companies in that post also reported a sharp rise in input costs. .

“With the economy already above its pre-virus trend and less favorable policy stance, growth momentum will slow this year,” analysts at Capital Economics said in a note on the PMI.

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China’s economic recovery accelerated dramatically in the first quarter of the year with a record growth of 18.3%, shaking off the impact of last year’s COVID-19-induced decline. Analysts now expect the world’s second-largest economy to grow 8.6% in 2021.

The robust economic recovery has outpaced rebounds seen in manufacturing competitors like India, which are still struggling to contain new waves of coronavirus outbreaks.

Policymakers in Beijing have signaled that they are eager to avoid sudden policy changes that could derail the recovery.

“We expect a recovery in export demand to help factory orders and the May holidays to help the service sector,” said Iris Pang, chief economist for Greater China at ING, in a note, referring to the holiday. of Labor Day in China starting on Saturday.

Demand abroad should also pick up as COVID-19 controls itself in major markets like the United States and Europe, he said, but chip shortages could continue for several quarters and drive up prices for electronics.

From delays in car deliveries to a supply shortage in home appliances, businesses and consumers around the world are facing the brunt of an unprecedented shortage of semiconductor microchips, exacerbated by sanctions against Chinese tech companies.

The official PMI, which focuses primarily on large and state-owned companies, showed that companies again laid off workers in April after increasing hiring the previous month for the first time in nearly a year. An employment subindex fell to 49.6 from 50.1 in March.

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An indicator of new export orders stood at 50.4 in April, falling from 51.2 a month earlier.

Taking advantage of the broader economic recovery, rising demand for raw materials fueled strong earnings growth for Chinese industrial companies in March as upward gains outpaced downstream sectors.

A raw material cost subindex in the official PMI stood at 66.9 in April, down from 69.4 in March, but maintaining a rapid pace.

In the services sector, activity expanded for the fourteenth consecutive month, but at a slower pace, dragged down by a sub-index of construction activity. (Reporting by Colin Qian and Gabriel Crossley Edited by Sam Holmes)

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