China’s manufacturing contracts in December at the fastest rate in nearly three years

China’s factory activity shrank for the third consecutive month in December and at the most honed pace in almost three years as Coronavirus diseases moved throughout production lines the country over subsequent to Beijing’s unexpected inversion of hostile to infection measures.

The official purchasing managers’ index (PMI) decreased from 48.0 in November to 47.0 on Saturday, according to the National Bureau of Statistics (NBS). A poll conducted by Reuters had economists anticipating a reading of 48.0 for the PMI. On a monthly basis, contraction and growth are separated by the 50-point mark.

Since the beginning of the pandemic in February 2020, the decrease was the largest.

After China lifted the world’s strictest Covid restrictions at the beginning of December, the data provided the first official snapshot of the manufacturing sector. Airfinity, a UK-based health data company, estimated that there were 18.6 million cumulative infections in December.

According to analysts, rising infections may result in increased supply chain disruptions and temporary labor shortages. On Wednesday, Tesla plans to reduce production at its Shanghai plant in January, extending the reduction in output that began this month into the following year.

China’s exports may be slowed further by weakening external demand as a result of growing concerns about a global recession, rising interest rates, inflation, and the war in Ukraine. This would hurt the country’s huge manufacturing sector and make it harder for the economy to recover.

“Most factories I know are way below where they could be this time of year for orders next year. A lot of factories I’ve talked to are at 50%, some are below 20%,” said Cameron Johnson, a partner at Tidalwave Solutions, a supply chain consulting firm.

“So even though China is opening up, manufacturing is still going to slow down because the rest of the world’s economy is slowing down. Factories will have workers, but they will have no orders.”

NBS reported that in December, 56.3% of manufacturers surveyed said they were greatly affected by the epidemic, up 15.5 percentage points from the previous month. However, the majority also said they expected the situation to improve gradually.