Chinese manufacturing activity slowed this January, thanks to a return of COVID-19 and severe lockdowns that cut off supplies. The National Bureau of Statistics Manufacturing Purchasing Managers Index fell to 50.1 from 50.3 in December. Reuters reports that the PMI remained above 50 points, but government data contradicts a private survey, which shows that factory activity has declined at the fastest pace in 23 months.
With the increase in local coronavirus cases in China, the government has stepped up its zero-COVID strategy. Intermittent travel restrictions and lockdowns have kept consumers in their place and away from domestic shopping meccas such as Hainan and Hong Kong.
China’s retail activity started stumbling last autumn when its sales missed expectations. Retail sales increased by 3.9 percent in November, year-on-year, but fell below the 4.6-percent rise forecasted by a Reuters poll.
In quarterly results, Alibaba slashed its sales forecasts sharply, citing sluggish growth in Chinese consumer spending. According to the Financial Times, Alibaba’s US-listed shares fell more than 10 percent after the e-commerce giant forecasted 20-23 percent sales growth for 2022, thanks to “softer market conditions.” At the same time, consumer confidence dipped in November and December, showing signs that shoppers are turning toward mindful consumption.
As such, retailers should prepare for a demanding year during which Chinese consumers will shop less and spend more time at home. Meanwhile, supply chain chaos could worsen in 2022, with global consumers buying more goods online. Therefore, global demand for Chinese-made goods will continue to soar. But power rationing and strict lockdowns in China will inevitably add to the manufacturing pressure.
Last December, China’s top leaders warned at an economic planning meeting that growth faces “triple pressure” from shrinking demand, supply shocks, and weakening expectations,” according to CNBC.
Without a doubt, global companies should prepare for a challenging first half of 2022 in China.
