China’s Manufacturing Sector Growth Moderates In January

China’s manufacturing sector expanded at the slowest pace in seven months in January amid a slowdown in output and new orders growth, survey results from IHS Markit showed Monday.

The Caixin manufacturing Purchasing Managers’ Index fell to 51.5 in January from 53.0 in December. A reading above 50 indicates expansion.

The slowdown in manufacturing is not surprising given that output was already well above trend – capacity utilization rates in industry hit an eight-year high last quarter, Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said. Despite the slowdown, activity will remain strong in the near-term.

“This year, we should pay attention to the effectiveness of domestic epidemic prevention amid the ongoing pandemic, and look at how to bring new momentum to the Chinese economy as uncertainties over overseas demand continue,” Wang Zhe, a senior economist at Caixin Insight Group said.

Manufacturers signaled a sustained rise in output in January, to extend the current period of expansion to 11 months. However, the rate of growth was the least marked since last April.

The slowdown coincided with a weaker increase in total new work at the start of the year as there was a renewed drop in export orders, which fell for the first time in six months. Respondents cited the resurgence of the Covid-19 virus globally as the reason for the reduction.

Employment decreased in January, albeit only marginal. Lower staff numbers were generally attributed to company restructuring and the non-replacement of voluntary leavers.

At the same time, manufacturers recorded the slowest accumulation in backlogs of work for eight months. Goods producers recorded a softer expansion of buying activity at the start of the year, with firms generally commented that purchasing rose in line with sales.

Notably, the latest upturn was the weakest since the current period of recovery began last May. At the same time, stocks of purchases fell moderately after a slight increase at the end of 2020.

Stock shortages at suppliers and shipping delays led to a further increase in delivery times for inputs, the survey showed.

Low stock availability and higher raw material prices lifted operating expenses. Moreover, the rate of inflation eased only slightly from December’s three-year high. Manufacturers raised their selling prices at the steepest rate since June 2018.

Although manufacturers in China generally expect output to rise over the next year, the degree of positive sentiment edged down to an eight-month low in January.

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