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China’s factories are still recovering, but Covid-19 pains linger

By Jill Disis, CNN Business

Activity at China’s big factories continued to pick up this month even as the country battles stubborn Covid-19 outbreaks that threaten to hamper production.

Manufacturing activity increased to 50.3 in December from 50.1 in November, according to survey data released by China’s National Bureau of Statistics on Friday.

It was the second consecutive month that the reading has registered above 50, a level indicating expansion rather than contraction.

An official index of non-manufacturing business activity rose to 52.7 in December from 52.3 in November, a sign that the services sector is continuing to recover, too.

China has continued its recovery this year after avoiding recession in 2020. Still, the world’s second largest economy is contending with headaches that could seriously weigh on growth in 2022, from repeated Covid-19 outbreaks to supply chain disruptions and an ongoing crisis in real estate.

Economists project growth of roughly 7.8% this year, but 2022 is a different story, with major banks cutting their growth forecasts to between 4.9% and 5.5%. That would be the second slowest rate of growth since 1990, when the country’s economy increased 3.9% following international sanctions related to the 1989 Tiananmen Square massacre. China’s economy grew 2.2% in 2020.

The ongoing real estate woes continue to rattle the economy. Cash-strapped property developers, such as massive conglomerate Evergrande, have shed jobs and offloaded assets to stay afloat — a big concern, considering the sector accounts for nearly a third of China’s GDP. Evergrande just this week said that it was making headway on plans to deliver new properties this month, but the stock was shaken after another debt payment deadline passed without signs that the company met its obligations.

There are also continued threats to factory output. Two of the world’s biggest chipmakers — Samsung and Micron — warned this week that Covid-19 outbreaks and stringent lockdowns in the major Chinese industrial hub of Xi’an are denting their operations.

Both companies said they’ve had to adjust operations in the city, which is experiencing one of China’s worst community outbreaks of the pandemic. Authorities have responded by enacting sweeping measures with an intensity and on a scale rarely seen since Wuhan, the pandemic’s original epicenter.

American chipmaker Micron noted that Xi’an’s lockdown could impact the production of its DRAM memory chips, which are used in computers, as the company has had to reduce its workforce at the site.

And Samsung — which has invested more than $10 billion in Xi’an, and employs more than 3,300 people there — said that it it had to “temporarily adjust operations” in the city. It added that it plans to take “all necessary measures, including leveraging our global manufacturing network, to ensure that our customers are not affected.”

Any slowdown in output from the city risks worsening the global chip shortage, an ongoing crisis that has limited the supply of everything from iPhones to new cars.

— Diksha Madhok and Laura He contributed to this report.

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