China’s Factory Activity Falls in October, Producer Price Soars to ‘Years High’

A Chinese worker looks back as he walks along a street after work in Beijing on Dec. 28, 2015. Wang Zhao/AFP via Getty Images

Beijing said China’s factory activity shrank for a second month in October, putting it down to power shortages, high raw material prices, and soft domestic demand. Meanwhile, authorities said producer prices have risen to “years high.”

Oct. 31 data from the National Bureau of Statistics (NBS) show China’s purchasing managers’ index (PMI) for the manufacturing sector contracted to 49.2 in October, down from 49.6 in September. The 50 mark separates growth from contraction on a monthly basis and a reading below 50 indicates a decline.

The monthly PMI of September shrank for the first time since February 2020 as the country was in the grip of a power crunch that pushed up coal prices. In addition, factories faced tougher emissions standards.

“The supply and demand sides slowed down further,” senior NBS statistician Zhao Qinghe said in an accompanying statement.

In line with the softer headline PMI, the sub-index for production continued to slip to 48.4 in October from 49.5 in the previous month. Meanwhile, another indicator shows new orders also weakened for a third month.

Raw material prices and producer prices soared, as the indexes were 72.1 and 61.1—8.6 and 4.7 higher than the previous month—where the latter reached a high level in recent years, according to Zhao.

Earlier this month, China’s NBS released the domestic price fluctuations of goods at the factory gate in September. The increase in the year-on-year Producer Price Index (PPI), which measures costs for goods at the factory gate, hit a 26-year high of 10.7 percent.

Taiwan-based financial analyst Huang Shicong said price increases had not been passed on to end consumer goods.

“Manufacturers would see their profits squeezed by increasing cost, coupled with price-capped consumer products, which is not good news for the Chinese economy,” he told the Chinese edition of The Epoch Times in a previous interview. Huang is also the show host for a stock analyzing program on ETTV News, a cable television channel in Taipei.

He blamed the price control driven by policymakers. “The Chinese Communist Party has transferred the pain from the civil society to the enterprises.”

A storm of power shortages is hitting Chinese families, industries, and the economy. Over 20 provinces across the nation have experienced power cuts since September. Some factories have been asked to suspend production on certain days or reduce energy usage. Sharply rising coal prices and capped prices also saw producers reluctant to generate electricity at a loss.

“In the long run, if companies can’t hold up, they may lay off employees,” according to Huang.

A worker produces heavy truck engines at a factory in Hangzhou, in China's eastern Zhejiang Province on Oct. 18, 2021. STR/AFP via Getty Images

Authorities said on Oct. 12 that it will allow coal-fired power plants to charge market-driven prices for electricity from Oct. 15, hoping to ease a worsening power crunch.

Sunday data show the raw material inventory in the manufacturing industry dropped and the supplier delivery time of raw material suppliers continued to be extended; A subindex for employment of manufacturing enterprises was down 0.2 to 48.8 from last month.

Moreover, activity in China’s services sector grew at a slower pace in October, as the non-manufacturing PMI in October slightly decreased to 52.4 from 53.2 in September.

The official composite PMI, which includes both manufacturing and services activity, fell to 50.8 from September’s 51.7.