• By The Financial District

China Factory Activity Takes Deep Dive: Caixin PMI

China's factory activity contracted at the sharpest rate in 23 months in January, underscoring the huge economic costs from the country's zero-COVID approach as surging cases and tough containment measures weighed on output and demand, a private survey showed.

Photo Insert: A factory in Zhaodong, Heilongjiang Province, China

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) fell to 49.1 in January - its lowest level since February 2020, when the economy was still suffering from country-wide COVID-19 lockdowns in the early days of the pandemic, Stella Qiu and Ryan Woo reported for Reuters.

The International Monetary Fund (IMF) on Wednesday cut its forecast for China's 2022 growth to 4.8%, from 5.6% previously, reflecting the property downturn and the hit to consumption from strict coronavirus curbs. The economy grew 4.0% in the fourth quarter from a year earlier, its weakest expansion in one-and-a-half years.

Economists in a Reuters poll had expected the index to ease to 50.4 from December's 50.9 but still point to some growth. The 50 mark separates growth from contraction on a monthly basis.

The unexpectedly weak reading is likely to reinforce market expectations that policymakers need to roll out more support measures to stabilize the faltering economy.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

China's central bank has already started cutting interest rates and pumping more cash into the financial system to bring borrowing costs down, and further modest easing steps are expected in the coming weeks.

A sub-index for factory output stood at 48.4, down from 52.7 in December, with firms surveyed reporting reduced intakes of new business and as a recent surge in COVID-19 cases and tough anti-virus measures impacted production, the survey showed.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

Demand also took a dive, as new orders fell at the fastest clip since August this year, and export orders shrank the most since May 2020. Exports were one of the few bright spots for China's economy in the second half of last year.

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