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China factory activity falls for 2nd month

China’s factory activity has contracted more than expected in October, shrinking for a second straight month, as high raw material prices and power disruptions pressured manufacturers in the world’s second-largest economy.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.2 in October, down from 49.6 in September, National Bureau of Statistics data released on Sunday shows.

The 50-point mark separates growth from contraction. Analysts had expected it to come in at 49.7.

China’s economy has lost steam in recent months due to domestic COVID-19 outbreaks, slowing exports, tighter measures to tame hot property prices and a campaign to reduce carbon emissions.

The sprawling manufacturing sector has been hit hard, with industrial output in September growing at the weakest pace since March 2020 on environmental curbs, power rationing and persistently high raw material costs.

Factory gate inflation rose to a record last month on soaring commodity prices, but weak demand capped consumer inflation, forcing policymakers to walk a tight rope between supporting the economy and further stoking producer prices.

Analysts polled by Reuters expect the People’s Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.

The official non-manufacturing PMI in October eased slightly to 52.4 from 53.2 in September, when services swung back to expansionary at the end of a COVID-fraught summer.

But new clusters of COVID-19 returned in October, especially in the north, which could again disrupt economic activity and deal yet another blow to the services sector due to tough restrictions to contain the spread of the disease.

China’s official October composite PMI, which includes both manufacturing and services activity, stood at 50.8, down from September’s 51.7.

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