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Caixin China manufacturing PMI falls to survey low on coronavirus countermeasures
02 March 2020Bernard Aw
Output, new orders and employment all drop at survey-record
rates
Supply chains under intense pressure
Fastest backlog accumulation for nearly 15 years
Optimism rises to five-year high as firms anticipate output
rebound upon restriction rollback
Recovery may come as soon as March
The COVID-19 outbreak had a severe impact on China's
manufacturing sector in February due to efforts to contain the
spread of the coronavirus, according to the latest Caixin PMI data.
Extended Lunar New Year work suspensions and factories operating
well below capacity caused production volumes and new order intakes
to plunge at survey-record rates. Supply chains were disrupted as a
result, causing backlogs of work to accumulate sharply.
The negative effects however are expected to be temporary, with
firms anticipating a swift recovery of output once restrictions to
halt the spread of the coronavirus are lifted.
Measures severely restrict output
The Caixin headline manufacturing PMI for mainland China,
compiled by IHS Markit, dropped from 51.1 in January to 40.3 in
February, indicating the sharpest deterioration of the health of
the sector since the survey started almost 16 years ago.
With widespread extended factory closures, travel restrictions
and resulting shortfalls in labour, manufacturing output fell at
the fastest pace since the survey started in early 2004. Lower
production was seen across the manufacturing industry, with small-
and medium-size enterprises hit particularly hard. However, the
output of large manufacturers also suffered. The few firms that
reported higher output were often medical equipment producers.
New orders received by Chinese manufacturers also fell sharply,
with the rate of decline the steepest in the survey history. Export
sales also shrank at a survey-record rate amid constraints on
production, shipping restrictions and order cancellations.
Chinese manufacturing conditions worsened sharply amid factory
shutdowns, travel restrictions
Coronavirus-related shortages of raw materials disrupted supply
chains, contributing to delivery times lengthening at a
survey-record rate. Consequently, purchasing activity also fall
sharply.
Supply chains under intense pressure
Public health measures designed to halt the spread of the
coronavirus reportedly led to a severe disruption of supply chains,
sharply restricting the availability of inputs to factories.
Delivery times lengthened to the greatest degree seen in the series
history.
Purchases of inputs by Chinese goods producers consequently fell
sharply, as reflected by a survey-record contraction of purchasing
activity. Average input cost inflation meanwhile eased from
January, linked in part to lower global commodity prices, notably
oil.
Recovery may come as soon as March
Production halts and severe staff shortages had contributed to
intense capacity pressures during February, as signalled by the
fastest rate of backlog accumulation for almost 15 years. The
timing as to when the coronavirus-related restrictions will be
relaxed is critical to restoring China's manufacturing productive
capacity - and therefore engendering a recovery.
Encouragingly, panel comments from the survey showed Chinese
firms anticipating the difficult situation faced by the sector to
be temporary. In fact, the level of confidence, as measured by the
Future Output Index, rose to the highest for five years in
February. This optimism was supported by positive developments in
the last week of February (Caixin PMI data were collected 11-21
Feb)
The final week of February continued to see industrial
production resuming, with work resumption rate in large industrial
enterprises rising to 77% on national average as of 28 February.
Infrastructure projects had also gradually been restarted. That
said, restarting work in small firms remained slow-going and
generally lagged their larger counterparts. Capital utilisation
ratio also stood around 50% due to ongoing shortages of workers and
raw materials.
Nevertheless, the current situation is expected to improve as
soon as in March with an increasing number of manufacturing
enterprises resuming work. Fiscal and financial measures aimed at
promoting work resumption amid a tapering off of new reported
Covid-19 cases will also support the move towards normalising
industrial output levels and construction activities.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
