Chinese factory activity grew slower in June (poll)

BEIJING (Reuters) – Chinese factory activity likely grew at a slower pace in June, hit by a resurgence of COVID-19 cases in the main exporting province of Guangdong, a Reuters poll showed on Monday, although that rapid containment indicates that economic disruption is easing.

Employees work on a production line for metal furniture parts at a factory in Hangzhou, Zhejiang Province, China April 30, 2020. China Daily via REUTERS / Files

The official purchasing managers index (PMI) of the manufacturing sector is expected to rise to 50.8 in June from 51 in May, according to the median forecasts of 32 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

“The main drag would be the disruption of COVID at the ports of Shenzhen, accounting for about 7% of domestic exports, which has resulted in slower growth in container throughput,” Morgan Stanley analysts said in a note to customers .

“This could increase domestic exports by 3 to 4 percentage points and thus slow the pace of production in intermediate to downstream sectors. Meanwhile, construction activity has likely slowed down due to rising commodity prices. “

More than 150 new cases of the coronavirus have been reported in Guangdong province, a manufacturing and export hub in southern China, since the latest wave of cases hit in late May, prompting local governments to step up prevention and control efforts which have reduced the processing capacity of ports.

But with port congestion easing, Shenzhen’s Yantian Port, which had been hit by a COVID-19 outbreak, resumed full capacity on Saturday, state media reported. Guangdong has not reported any cases of COVID-19 for six days.

Chinese exporters, who have defied expectations of a slowdown since the start of the pandemic, grapple with a global semiconductor shortage, high raw material costs and skyrocketing shipping costs as ‘increased global demand for Chinese products is expanding global shipping capacity.

Chinese officials have said they will curb any unreasonable increases in commodity prices. The state planner has launched investigations into the coal, iron ore and fertilizer markets.

Meanwhile, in Chinese industrial companies, profit growth slowed again in May, official data showed on Sunday, as soaring commodity prices squeezed margins and weighed on factory activity.

The official PMI, which focuses mainly on large state-owned companies, and its sister survey of the service sector, will both be released on Wednesday.

Caixin’s private manufacturing PMI will be released on Thursday. Analysts expect the stock reading to drop slightly to 51.8 from May’s 52.

Reporting by Stella Qiu and Ryan Woo; Editing by Christopher Cushing

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