China’s January factory activity growth likely slowed as COVID cases rise: Reuters poll By Reuters

© Reuters. Employee works at a factory of the Zhejiang Headway Communication Equipment Co in Huzhou

BEIJING (Reuters) – China’s factory activity likely expanded at a slower pace in January amid a resurgence of local COVID-19 cases, a Reuters poll showed, although growth is seen staying at an elevated level, suggesting momentum is firm going into 2021.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip slightly to 51.6 in January from 51.9 in December, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion inactivity on a monthly basis.

“High-frequency indicators suggest a slowdown in production as temperature cools and Lunar New Year holiday approaches,” said Liu Xuezhi, an analyst at the Bank of Communications, in a note to clients.

China’s economy expanded at a faster-than-expected rate of 6.5% in the fourth quarter last year, thanks to the surprisingly resilient export sector, as factories raced to fill overseas orders amid a surging pandemic.

Profits at China’s industrial firms surged 20.1% year-on-year in December, helped by improving factory-gate prices, which fell at their slowest pace since February last month.

But recovery hopes are being dampened by a sharp increase in COVID-19 cases as authorities in Northern China raced to impose lockdown measures to curb the spread of the virus, affecting steel mills and consumer confidence.

Many exporters have told Reuters that they’re facing a squeeze in their profit margins amid a shortage of containers, an appreciating Chinese currency and rising raw material prices.

“The surging shipping costs and a tumbling U.S. dollar have forced our factories to give up on some overseas orders,” said a business owner that runs several textile factories in the southeastern city of Jiaxing.

“So we’ve decided to let workers go home earlier than usual,” the owner said, speaking on the condition of anonymity.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect that headline reading will dip to 52.7from 53 in December.

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