China’s Sept factory activity set for third straight monthly contraction – Reuters poll

BEIJING  – China’s factory activity is expected to have shrunk for a third month in a row in September, a Reuters poll showed on Thursday, as strict COVID measures in big cities and weakening exports growth hit orders and business confidence.

The official manufacturing Purchasing Manager’s Index (PMI) was forecast at 49.6 for this month, a touch higher from 49.4 in August, according to the median forecast of 26 economists polled by Reuters.

The 50-point mark separates contraction from growth.

China’s economy showed some improvements in August with faster-than-expected growth in factory output and retail sales, but protracted COVID restrictions, softening exports momentum and the continued drag from a stressed property sector have dimmed the outlook.

On Tuesday, data showed profits at China’s industrial firms shrank at a faster pace in January-August.

Chengdu, a mega city with a population of 21 million in southwestern Sichuan province, was locked down on Sept. 1 after COVID cases were detected, becoming the largest Chinese metropolis to be hit with curbs since Shanghai’s lockdown in April and May.

Shenzhen, the tech hub in southern China with a population of 18 million, has also adopted tiered anti-virus measures in early September.

“This could contribute to falls in orders, employment and business confidence,” Min Joo Kang, an economist at ING, said in a note, referring to the recent fresh COVID curbs.

Many economists see China’s zero-COVID policy as a major constraint on growth.

While steel demand and production strengthened in the first three weeks of September compared with August, analysts at Goldman Sachs pointed to a soft underbelly with export growth appearing to have deteriorated further.

“Container throughput data for the first 10 days of September declined 15 percent year-on-year partially on port disruptions due to typhoons, which might drag on manufacturing activity growth,” they said.

Goldman Sachs revised down its 2023 China GDP growth forecast to 4.5 percent from a previous projection of 5.3 percent, and predicted that Beijing is unlikely to begin reopening before the second quarter next year.

The official manufacturing PMI, which largely focuses on big and state-owned firms, and its survey for the services sector, will be released on Friday.

The private sector Caixin manufacturing PMI, which centres more on small firms and coastal regions, will also be published on Friday. Analysts expect a headline reading of 49.5 for that, the same as for August.

($1=7.2235 Chinese yuan renminbi)