China manufacturing plunges in February amid virus controls

Business

In this Feb. 27, 2020 photo, a woman works on a spinning mill in a textile factory in Hangzhou in eastern China’s Zhejiang Province. A gauge of Chinese manufacturing plunged in February by an even wider margin than expected after efforts to contain a virus outbreak shut down much of the world’s second-largest economy. (Chinatopix via AP)

BEIJING (AP) — China’s manufacturing plunged in February by an even wider margin than expected after efforts to contain a virus outbreak shut down much of the world’s second-largest economy, an official surveyed showed Saturday.

The survey, coming as global stock markets fall on fears the virus will spread abroad, adds to mounting evidence of the vast cost of the disease that emerged in central China in December and its economic impact worldwide.

The monthly purchasing managers’ index issued by the Chinese statistics agency and an industry group fell to 35.7 from January’s 50 on a 100-point scale on which numbers below 50 indicate activity contracting.

A sub-measure of imports plummeted, highlighting the shock waves spreading through China’s Asian neighbors and other suppliers of components and raw materials to its factories, which assemble most of the world’s smartphones, toys, home appliances and other consumer goods.

“Supply chains are likely to remain disrupted even if China’s factories go back to full production,” due to spreading travel bans and other anti-virus controls abroad, said Iris Pang of ING in a report. She said it was “incredibly unlikely” the global flow of goods would recover even in April.

The PMI decline was widely anticipated after the government extended the Lunar New Year holiday to keep factories and offices closed but the figure was even more severe than many forecasters expected. Many analysts expected a result in the low 40s, which already would have been the lowest since the PMI first was issued in 2002.

Stock markets in the United States, Europe and Japan tumbled by about 10% over the past week after outbreaks in South Korea, Iran and Italy. Oil prices have sunk on expectations manufacturing worldwide might decline.

The official PMI is compiled by the National Bureau of Statistics and the China Federation of Logistics & Purchasing.

Other major economic indicators “are expected to decline significantly” in the three months ending in March, said a government economist, Zhang Liqun, in a statement they released.

The Communist Party is trying to revive business activity in some parts of China while ordering areas deemed at high disease risk to stay focused on fighting the virus.

The government has cut a key interest rate and promised companies tax breaks, low-cost loans and other aid. Local officials have orders to help millions of employees get back to work while preventing a rebound in infections.

Most access to Wuhan, a manufacturing hub with 11 million people where the disease first emerged, was suspended Jan. 23. Controls on travel spread to cities with a total population of 60 million and restaurants, shops, cinemas and other businesses nationwide were ordered to close. Sales of autos and real estate fell close to zero.

Some industries, including state-owned steel and copper mills, operated at normal levels throughout the shutdown, helping to buoy the official activity reading.

The PMI highlighted the bigger blow suffered by the small, mostly private companies that are the country’s economic engine, produce goods for global brands and supply components for smartphones and other consumer electrics.

A measure of production fell to 26.1 among small enterprises, while the measure for bigger companies was 28.3.

The measure for imports fell to 31.9 from January’s 57.

The official PMI draws on a sample of companies that is weighted toward larger, state-owned companies that serve the Chinese market. A separate PMI with more private companies and exporters is due to be released Monday by a Chinese business magazine.

The previous lowest PMI readings were in the mid-40s following the 2008 global financial crisis.

Manufacturing activity normally would be expected to rebound in February as factories reopen and replenish raw materials following the Lunar New Year, when many shut down for two weeks or more.

Regulators say Chinese industry is reviving but activity still is weak.

The 18 million small, mostly private companies that account for the bulk of industrial activity and employment are back to operating at one-third of normal levels, officials said Thursday at a news conference. An official of the Cabinet planning agency, Zhang Kejian, said activity is increasing by about 1% per day.

It is unclear how many factories and other employers might be forced to close for good under the burden of paying rent and other expenses with no revenue.

Global automakers are reopening factories but say the pace will depend on how quickly the flow of components from suppliers resumes. Forecasters say auto industry activity won’t return to normal until at least mid-March.

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