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PMI: China extracts much more coal again, and that increases factories




A government investigation of production activity increased 50.1 in November from 49.2 in October, according to data released by the National Bureau of Statistics (NBS) on Tuesday. It was the first reading over 50 – indicating expansion instead of contraction – in three months. It was also the first time since March that the index increased compared to the previous month.

Beijing on Tuesday attributed the improvement to “recent policy measures” that have strengthened energy supplies and stabilized sky-high costs.

“In November, the shortage of electricity decreased and the prices of some raw materials fell significantly,” said Zhao Qinghe, senior statistician for NBS, in a statement.

But while the official figures are promising, data from a private survey this week do not provide a robust picture. The Caixin PMI survey said on Wednesday that China̵[ads1]7;s manufacturing industry for November slipped into the contraction zone, falling to 49.9 from October’s 50.6. A reading below 50 indicates contraction rather than expansion.

The discrepancy between the two surveys can be attributed to methodology – Caixin looked at small and private companies, while the government focused on larger ones.

Wang Zhe, senior economist at Caixin Insight Group, highlighted the problems facing smaller companies in China, including declining employment and high raw material costs. He added in a statement accompanying the data that decision-makers “should continue to focus on supporting small and medium-sized enterprises.”

Nevertheless, surveys overall “still suggest that industrial production picked up again in November as power shortages eased,” according to a report by Sheana Yue, assistant economist at Capital Economics.

China has struggled with the power crisis for several months, as extreme weather, increasing demand for energy and strict limits for coal use gave a triple blow to the country’s power grid.
The problem came to the fore in September, when companies were told to limit energy consumption to reduce the demand for power. The supply was cut to some homes, and people were reportedly even caught in elevators.
The energy crisis, together with rising raw material costs, resulted in a sharp fall in industrial production for September and October. To combat the problem, the authorities have eased efforts to cut carbon emissions and ordered coal mines to increase production.

The result was remarkable. China – which uses more than half of the world’s coal supply and is already the largest emitter of carbon – set a new daily record for coal production in mid-November, according to statistics from the National Development and Reform Commission (NDRC).

The agency’s “strong interventions” alleviated the “general lack of power” and eased cost pressures in some industries, analysts from Citi wrote in a research report on Tuesday. The electricity problems had pushed up the prices of aluminum, steel and other raw materials, and rippled through industries such as car production and construction.

Still stress?

However, there may be some continued stress on industrial production in the coming months, due to China’s preparations for the upcoming Winter Olympics, a persistent real estate crisis, and the potential impact of the new Omicron variant of the coronavirus.

Citi analysts say the production of raw materials – which cause high levels of air pollution – may be limited in northern China as the government tries to “ensure blue skies for [the] Beijing Winter Olympics. “

The downturn in China’s real estate sector poses another risk.

Tuesday’s data showed while new orders received by factories receded somewhat, this meter still did not enter the expansion area, indicating that domestic demand remains weak.

“The biggest challenge now is the significant pressure that the decline in real estate is putting on aggregate demand,” said Citi analysts. Real estate – and related industries – account for as much as 30% of Chinese GDP.

Tuesday’s data also showed that The PMI for non-industry, which measures the performance of the service and construction industry, reached 52.3 in November, slightly weaker than in October 52.4.

Analysts say the Omicron variant could be a concern going forward, especially for the service industry.

The latest variant of the coronavirus has been labeled a “concern” by the World Health Organization due to its seemingly rapid spread in South Africa and its many disturbing mutations. While specific details about the new variant have not yet been clarified, several countries have fought to introduce travel bans.

However, China has long followed a “zero Covid” approach, maintaining what is already one of the most stringent border restrictions in the world.

“Looking ahead, most of the weakness in services should reverse in December unless – obviously a major caveat with the rise of Omicron – there are new outbreaks,” he wrote. economists with Capital Economics in a Tuesday report. “In that case, the authorities will turn to stricter controls to limit it.”



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