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China’s factory activity contracted in September for the first time since the pandemic began last year, a sign that the widespread electricity crunch is impacting an already slowing economy.  The official manufacturing purchasing managers’ index declined to 49.6 from 50.1 in August, the National Bureau of Statistics said Thursday, below the 50-mark that signals a decline in output. 

Analysts in a Reuters poll had expected the index to remain steady at 50.1, unchanged from the previous month. The 50-point mark separates growth from contraction.

The non-manufacturing gauge, which measures activity in construction and services sectors, improved to 53.2, well above the consensus forecast of 49.8.

Separately, the Caixin manufacturing PMI, a private gauge of output, rebounded to 50 from 49.2 in August. The improvement was thanks to firmer domestic demand and an increase in new orders, as export sales continued to decline, Caixin Insight Group said in a statement.

China is facing a widespread power crunch that threatens to slow economic growth and disrupt global supply chains just ahead of the year-end Christmas shopping season.  The electricity shock adds to a slew of headwinds already hitting the economy: the property market is under stress with China Evergrande Group facing a debt crisis; high commodity prices have squeezed industrial profits; the government has cracked down on industries from property to the internet; and consumer spending remains weak due to virus outbreaks.

"In September, due to factors such as low volumes of business at high energy-consuming industries, the manufacturing PMI fell below the critical point," said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.

A shortage of coal, tougher emissions standards and strong demand from manufacturers and industry pushed coal prices to record highs and triggered widespread curbs on electricity usage in at least 20 provinces and regions.

The services sector however benefited somewhat from spending over the three-day Mid-Autumn Festival holiday, rebounding to 52.4. Even so, tourism revenue and travel remained below pre-Covid levels, indicating still weak consumer confidence after the government imposed stringent virus control measures to bring a wave of delta clusters under control. 

The official September composite PMI, which includes both manufacturing and services activity, stood at 51.7 versus 48.9 in August.

 

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