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China’s factory activity expected to shrink slightly in October- Reuters poll -Breaking

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© Reuters. FILEPHOTO: SMC component-maker employees wear face masks during a government-organized tour to the factory following the coronavirus epidemic (COVID-19), which occurred in Beijing on May 13, 2020. REUTERS/Thomas Peter

BEIJING, (Reuters) – China’s factory activity may have contracted in October according to a Reuters poll. This is due to high raw material costs and continued power shortages that continue to press on the second-largest country.

According to the consensus forecast of 23 economists polled, the official manufacturing Purchasing Manager’s Index will rise to 49.7 this October. This is just below the September reading of 49.6. If the reading is below 50, it means there was a decrease in activity from the prior month.

China’s economy quickly recovered from the pandemic-induced slump it suffered last year. However, momentum has been slowed in recent months with the huge manufacturing sector experiencing heightened costs, production bottlenecks and, more recently, electricity shortages.

The power restrictions should have been slightly relaxed after policymakers took steps to reduce coal prices. However, analysts at Standard Chartered Bank said that overall factory activity may have declined.

“The authorities introduced steps to boost coal supply and raised the price cap for power supply to promote electricity production and contain demand from high-energy-consuming industries,” they said.

The September factory gate inflation reached a new high thanks to record-breaking commodity prices. But, low consumer demand has capped inflation. This forced policymakers to choose between supporting the economy, and further inflaming producers prices.

China has ongoing coronavirus infections that are small in scale. These could affect economic activity. According to health authorities, 64 coronavirus infections were confirmed in October 28th. The majority of these cases occurred in China’s northern regions.

In September, profits at China’s industrial companies grew faster despite rising prices and supply shortages. This was largely due to the stellar growth of mining and raw material industries. However, some businesses were unable to overcome high costs.

Reuters polled analysts and found that they expect the People’s Bank of China not to try to stimulate the economy through reducing cash reserves banks have to keep until the first quarter of 2020.

The Sunday release of the official PMI and sister survey will focus on state-owned and large companies.

On Monday, the private Caixin manufacturing PMI report will be released. Analysts anticipate that the headline reading of 50 will hold the same value as it did last month with activity remaining stable.

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