China industries contract in August amid power cuts, COVID-19 curbs

SINGAPORE (ICIS)–China’s manufacturing activity continued to contract as the country grapples with power outages caused by record heatwave and drought in August, with fresh COVID-19 curbs hampering overall industrial output and consumption.

Its official manufacturing purchasing managers’ index (PMI) for August stood at 49.4, up from July’s 49.0, but remaining in contraction territory for the second consecutive month.

A PMI reading above 50 indicates expansion in the manufacturing economy, while a lower number denotes contraction.

The production sub-index in August was unchanged from July at 49.8, while new orders were at 49.2, up from 48.5 in the previous month.

“Both [production and new orders] indexes continued to be in the contraction range, indicating that the recovery of manufacturing production and demand still needs to be strengthened,” the National Bureau of Statistics (NBS) said.

China’s non-manufacturing PMI in August continued to expand but registered a lower reading of 52.6 compared with July’s 53.8.

RECORD HEATWAVE POUNDS INDUSTRIES
The world’s second-biggest economy is experiencing its longest, broadest and hottest heatwave since 1961, according to China’s National Climate Center.

The resulting power outages at industrial hubs were further dampening demand for petrochemicals already hit by COVID-19 lockdowns.

“Such production shutdowns may not only affect local economic activity but may also lead to operation issues in other regions along the supply chains across China,” Japan-based Nomura Global Markets Research said in a note.

“The widespread power rationing for factory operations and factory shutdowns will likely weigh on industrial activity and the impact will be reflected in PMI, industrial production and exports in August,” it said.

Temperatures of above 40-degree Celsius were recorded in parts of China, since the beginning of August, with some started experiencing scorching weather as early as July.

Among the affected provinces are Sichuan, Shaanxi, Hubei, Hunan, Jiangxi, Fujian, Anhui, Jiangsu and Zhejiang. China’s financial capital and automotive hub of Shanghai was also affected, while the municipality of Chongqing is the hardest hit.

In late August, however, torrential downpours have hit Chongqing and Sichuan, partially easing drought conditions in the southwestern parts of China.

ZERO-COVID POLICY BITES
Based on official PMI readings, manufacturing in Asia’s biggest economy recorded contraction in five of the past eight months, largely because of lockdowns amid the government’s zero-COVID policy.

This week, China stepped up pandemic-related controls, with areas surrounding Beijing including parts of Hebei province and Tianjin ordered to go into partial lockdowns or COVID-19 mass testing.

In the technology hub of Shenzhen, nearly half of the city’s 18m residents are being placed under tightened COVID-19 curbs even though the city reported just 35 infections on 30 August.

Chinese petrochemical giant Sinopec earlier this week reported that its chemical earnings shrunk 94% as demand collapsed amid COVID-19 curbs.

Focus article by Nurluqman Suratman

Thumbnail photo: A picture taken with a drone of Jiangling river amid drought, a major tributary of the Yangtze River, in Chongqing, China. (Source: WU HAO/EPA-EFE/Shutterstock)

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