BEIJING (Reuters – China’s manufacturing activity slowed down in January because of a resurgence COVID-19 and hard lockdowns. But, some signs of resilience were seen in the modest expansion as China’s world-second-largest economic country enters a potentially bumpy year.

According to data released by the National Bureau of Statistics on Sunday, the official manufacturing Purchasing Manager’s Index, (PMI), registered 50.1 in January. This is still above the 50 point mark which separates growth and contraction. However, it was slower than the 50.3 recorded in December.

Analysts expected that the PMI would fall to 50.

The official results contrasted with those in a private survey https://www.reuters.com/markets/europe/chinas-jan-factory-activity-contracts-covid-lockdowns-bite-caixin-pmi-2022-01-30 of mostly small manufacturers in coastal regions, which showed activity fell at the fastest rate in 23 months.

China’s economy began last year strongly, recovering from a severe pandemic-induced slump. However, it lost momentum in summer due to debt problems in its property market, strict anti-virus measures, and lowered consumer confidence that have impacted spending and consumer confidence.

Corporate profit margins have been impacted by rising raw material costs, as well as soft demand. In December, industrial companies saw their profits rise at the slowest rate in more than a decade and a half.

China’s central banks have begun to reduce interest rates, and have also started to pump more money into the financial sector to help lower borrowing costs. In the coming weeks, further modest steps of easing are possible.

Before the Communist Party’s once-in-5-years congress in this year’s Communist Party, Stability will triumph over everything. With policymakers trying to avoid a worsening slowdown that could impact job creation,

Risks of EASING and COVID CURBS

However, such easing comes with risks. Other global central banks, like the U.S. Federal Reserve, are planning to increase interest rates. This could lead to capital outflows into emerging markets, like China.

On Wednesday, the International Monetary Fund reduced its China 2022 growth projection to 4.8% from 5.6%. This is due to the impact of strict COVID-19 curbs on consumption and property woes.

Zhang Zhiwei is the chief economist of Pinpoint Asset Management. He stated, “Industrial activities slowed down due to low domestic demand.” The outbreaks that struck many cities have also adversely affected the service sector.

“The low PMI suggests that policy easing actions taken by the government haven’t yet been transferred to the real economic… We expect that the government will intensify policy supports over the next few months, particularly via more fiscal spending.”

An official PMI sub-index for production was 50.9. This is lower than 51.4 December. New orders decreased to 49.3 in December.

Although China’s COVID-19 new cases are low compared to many countries, a spike in infections at Xian’s manufacturing center has forced several auto- and chip manufacturers to close their doors. After the release of the lockdown, production gradually resumed normal.

Samsung Electronics (OTC) Co Ltd temporarily adjusted its operations at the Xian production facilities for NAND flash memories chips last month, but said that production is now back to normal.

The highly transmissible Omicron variant also caused disruption in Tianjin’s output.

The government also aims to reduce industrial air pollution ahead of the Beijing Winter Olympics which will begin on Friday. China told northern steel mills to reduce production by mid-March.

A survey of China’s services industry also found that the growth rate was declining in January as consumers were more concerned about virus containment.

China’s composite PMI (which combined manufacturing and service) was 50.1 in January, compared to 52.2 in December.

China’s economy expanded 4.0% during the fourth quarter, a decrease of 1% from one year prior. This is its lowest expansion rate in just over a decade.