China power crisis causes sudden contraction in factory activity

China’s factory activity has shrunk unexpectedly amid curbs on electricity use and rising prices for commodities and parts, raising more concerns about the state of the world’s second biggest economy, The Guardian reported.

A closely watched survey released on Thursday showed that China’s factory activity contracted in September for the first time since the pandemic took a grip in February 2020.

The figures showed that output fell thanks to a marked slowdown in high-energy consuming industries, such as plants that process metals and oil products. Sub-indices also highlighted a fall in new orders, employment and new export orders, the report said.

The sudden contraction in factory activity will further weigh on an economy already facing serious problems in its bloated property sector, chiefly in the form of the struggling behemoth Evergrande.

Analysts had expected the manufacturing purchasing manager’s index (PMI) to remain steady at 50.1 in September, but the official result showed the index at 49.6. The 50-point mark separates growth from contraction.

China’s economy rapidly recovered from a pandemic-induced slump last year. Although the non-manufacturing PMI provided a welcome bright spot for September, momentum has broadly weakened in recent months, with its sprawling manufacturing sector hit by rising costs, production bottlenecks and electricity rationing.

Economies throughout the world are grappling with production issues due to supply chain disruptions. The UK car production fell 27 per cent in August because of a shortage of semiconductors, and data on Thursday showed Japan’s industrial output falling for a second straight month in August.