A Chinese factory worker in Hohhot, Inner Mongolia province.

China’s manufacturing purchasing managers’ index fell to 35.7 in February from 50 the month before, the lowest number the index has registered since the government has compiled the data and below the 38.8 figure reported in November 2008 during the global financial crisis.

It’s the first piece of official data reflecting the coronavirus outbreak and confirms fears over the impact to the Chinese economy. Data across sub-indices showed weakness throughout.

Export orders dropped to 28.7 from 48.7 in January, while imports fell to 31.9 from 49.0. Manufacturing production fell to 27.8 from 51.3, while new orders plunged to 29.3, down from 51.4 a month prior.

A reading below 50 indicates a contraction, and the further the figure is below 50 the greater the contraction in activity.

“Covid-19 has not only stopped production but has also broken the supply chain of production, which explains the very low PMI, export orders and new export orders,” said Iris Pang, economist for greater China at ING, describing it as “altogether, an eye-watering set of weak numbers.”

“In the press release, the government reported that bigger factories’ resumption of work reached 85 percent as of Feb. 25. This isn’t as positive as it sounds,” Pang said.

“Even if China‘s factory production can recover in March, it will still face the risk of a low level of export orders,” Pang said. “This is because the supply chain will continue to be broken, this time in South Korea, Japan, Europe and the U.S., where Covid-19 has begun to spread. Exports will, therefore, continue to be weak in 1Q20 and even into 2Q20.”

Wang Tao, chief China economist for UBS, commented that factory resumption is different to getting a factory at full operational capacity. The employment sub-index, which measures employment level within manufacturing companies, dropped to 31.8 from 47.5 points, confirming that companies have struggled to find labor.

However, Wang said that she doubted that the coronavirus would speed up the supply chain shift to other countries, as others have suggested.

“I believe the supply chain shift has been happening in the past years because of cost of labor, cost of environment, and the trade war between the U.S. and China definitely quickened that shift because people want to diversify. But in terms of the outbreak, if China can resume work in the next few weeks I’m not sure that will speed up the transfer of supply chain,” she said.

“If you move to other countries, does that mean smaller risk from outbreak disruption? Other countries’ emergency response system may not be as good as China’s and there are also other advantages [to remaining within China].”

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