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China October Factory Growth Slows More Than Expected On Smog War, Softer Export Orders

Nov 07, 2017

Growth in China's manufacturing sector cooled more than expected in October in the face of tighter pollution rules that are forcing many steel mills, smelters and factories to curtail production over the winter.

While still easily in expansionary territory, China's monthly official factory survey also showed unexpected weakness in new export orders, which had been expected to pick up heading into the peak year-end shopping season.

The data gives global investors their first look at business conditions in China at the start of the fourth quarter, with the government's punishing war on smog adding to uncertainty amid early signs of a slowdown in the world's second-largest economy.

"Some regions stepped up pollution controls this month, with firms adjusting, halting or staggering production," National Statistics Bureau official Zhao Qinghe said in comments published with the data.

Zhao said that activity in energy-intensive and polluting industries slowed in October, while high-end manufacturing and consumption-related manufacturing continued to grow.

The official Purchasing Managers' Index (PMI) released on Tuesday fell to 51.6 in October, from 52.4 in September, which was the strongest in over five years.

It was the weakest reading in three months, but remained above the 50-point mark that separates growth from contraction on a monthly basis.

Analysts surveyed by Reuters had forecast the PMI would fall slightly to 52.0, but still point to the 15th straight month of expansion.

China's economy has recorded better-than-expected growth of nearly 6.9 percent through the first nine months of this year, buoyed largely by a recovery in its manufacturing and industrial sectors thanks to strong government infrastructure spending, a resilient property market and unexpected strength in exports.

Profits for the country's industrial powerhouses surged 27.7 percent in September, the most in nearly six years, as environmental inspections and the start of plant closures in smog-blighted northern provinces sparked fears of supply shortages and sent prices of finished goods like steel and copper sharply higher.

However, the latest survey showed input price gains slowed considerably in October, with the reading at 63.4 compared to 68.4 in September and the weakest since July.

A separate PMI for the steel industry showed raw material purchase prices fell sharply in October after strong gains in recent months.

Output price gains also slowed, reflecting concerns that higher commodity prices have not trickled down to higher prices and profit margins for downstream industries.

Prices of steelmaking raw materials such as iron ore and coking coal have started to dive on fears that winter output curbs will lead to a supply glut, weighing on mining companies and global commodity prices. [IRONORE/]

More rigorous restrictions on steel output are expected in November as manufacturers in 28 cities in northern China have been asked to stagger production to reduce emissions.

The employment situation in both the manufacturing and services industries worsened in October, with firms across the economy shedding staff at a faster rate, the data showed.


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