Supply, demand stable on COVID steps; sector confident of better 2023

Manufacturers in China have been facing milder pressure since last month as market supply and demand capacity showed signs of stabilization upon optimized COVID-19 containment, a private survey said on Wednesday.

Nevertheless, as manufacturing activity has shrunk for six straight months, there is a need to step up policy support for domestic demand and smaller businesses, experts said.

The Caixin China General Manufacturing Purchasing Managers' Index - which gauges operating conditions in the sector - rose from 49 in December to 49.2 in January, indicating a mitigation of the downward pressures on manufacturing activity, media group Caixin said in a report on Wednesday.

With optimized COVID-19 measures, output of the manufacturing sector fell at the softest pace in five months, the downturn in new orders moderated, while the strain on supply chains eased, the report said.

Referring to the 12-month outlook for output, manufacturers polled by Caixin expressed the strongest optimism since April 2021, supported by hopes that economic conditions will improve and new market orders will rebound.

Despite the improvements, the Caixin PMI, which is still below the 50 mark that separates expansion from contraction for the sixth month in a row, indicates that the contraction in manufacturing activity has continued.

A rise in COVID infections nationwide shrunk the number of people at work, keeping the subindex of employment in contraction territory for the 10th month running. External demand remained weak due to mounting recession risks overseas, as the reading for new export orders contracted for the sixth consecutive month, the Caixin report stated.

"Overall, the pandemic continued to take a toll on the economy in January," said Wang Zhe, senior economist at Caixin Insight Group.

After being hit by recent COVID infections, the primary focus of economic work should be on accelerating economic recovery and promoting normalized production and social order, Wang said.

"Improving expectations, restoring confidence, increasing income, expanding consumption and stimulating domestic demand will be among the priorities," he said.

The official PMI, released on Tuesday, also indicated improving operating conditions of the manufacturing sector, which bounced back to 50.1 in January from 47 in December, data from the National Bureau of Statistics showed.

Yet the foundation for recovery "needs to be further consolidated", said Zhao Qinghe, a senior statistician at the NBS, citing that insufficient market demand remains the most important problem facing the production and operations of enterprises.

The country is stepping up policy support for the recovery of both domestic demand and operations of smaller businesses. Speaking during a fact-finding trip on Monday to the People's Bank of China, the central bank, and the State Administration of Foreign Exchange, Premier Li Keqiang highlighted the need to amplify the role of finance in stabilizing the macroeconomy.

Li called for enhancing financial support to strengthen consumption, investment and economic structure and improving the financial environment for the private sector, especially small firms.

As the country's consumption recovery gains traction, profits of industrial firms are expected to improve this year, especially in sectors such as electric equipment and vehicle batteries, said Darius Tang, associate director of corporates at Fitch Bohua, a subsidiary of Fitch Ratings.

The Caixin report also said that average input costs facing manufacturers increased at the quickest rate in seven months in January. That said, the rate of price increases remained much slower than the historical average.