The manufacturing industry closed October in the red, falling for the second consecutive month, according to data published by the Chinese National Statistics Office..

The purchasing manager index (PMI) stood at 49.2 points, 0.4 points less than in September and below the 49.7 points forecast by the market. Zhao Qinghe, a statistical expert at the Chinese National Statistics Office, describes this contraction referring to the “high price of some raw materials” and the “shortage of electricity supply”.

Although larger companies have managed to weather the storm for now, small and medium-sized companies have seen a more notable decline.

Production falls while inflation advances unstoppable

Zhao added that the contractions of some industries such as textiles, non-metallic minerals or ferrous metals, was even deeper, as their indexes of new orders and production were below 45 points. “The manufacturing index has fallen to its lowest level since its publication in 2005, excluding the period of the global financial crisis of 2008/09 and the COVID outbreak in February 2020,” said Jive Zhang, chief economist at Pinpoint Asset Management, as reported by Reuters.

Zhang further noted that “The producer price index has risen to its highest level since its publication in 2016.” These signs confirm that the Chinese economy is probably already experiencing stagflation.”

Factory inflation rose to a record last month due to rising commodity prices, while weak demand helped drive inflation higher.

In this regard, Zhou Hao, senior economist at Commerzbank, highlighted that “Production remains weak, which indicates that the demand problem may be relatively large. Some loosening of the policy is still needed”.

Image: Factory in Zhuhai, China. Credits: Chris, Shenzhen, China