China’s big factories are bouncing back rather quickly as a power crunch that held back production starts to ease, owing to increased supply of coal.

A survey conducted by the National Bureau of Statistics (NBS) on Tuesday, November 2021, indicated manufacturing activity increased from 49.2 to 50.1 in November 2021. This is the first reading above 50 mark- indicating expansion of manufacturing activity- in three months.

Beijing on Tuesday, November 30, 2021, indicated that the expansion was due to “recent policy measures” that have improved energy supply and stabilized rising energy costs.

“In November, power shortages eased and prices of some raw materials dropped significantly,” said Zhao Qinghe, senior statistician for NBS.

Energy challenges in China have dragged for months, as extreme weather, rising demand for energy and limits on coal usage placed intense pressure on the nation’s electricity grid.

The energy crunch heightened in September, 2021 when companies were asked to reduce their energy consumption levels to bring demand for power down. According to reports, power supply was cut to some homes, leading to several inconveniences.

Compounding matters, the power crunch led to the surge in raw material costs, resulting in a sharp decline in industrial output for the previous months. To curb the problem, authorities have toned down efforts to cut carbon emissions and ordered coal mines to ramp up production.

The result was that China, which uses more than half the world’s coal supply and is already the largest emitter of carbon- set a new daily record for coal production in mid-November, 2021, according to statistics from the National Development and Reform Commission (NDRC).

Omicron Variant poses risks to industrial output

It is early days yet to jubilate over the rebound in production, considering the potential impact of the new Omicron variant of the coronavirus on industrial output, which is still unfolding. A continued crisis in the country’s real estate sector may also impact industrial output as well as the downturn in China’s property sector.

The NBS data showed that while new orders received by factories rebounded, it still did not enter expansion territory, suggesting that domestic demand remains weak.

“The major challenge now is the significant pressure that the property downturn puts on the aggregate demand,” the Citibank analysts said.

The data also showed that non-manufacturing PMI, which measures the performance of services and construction industries, reached 52.3 in November, 2021, slightly weaker than that of October (52.4).

Experts and analysts are of the view that the Omicron variant might be a concern going forward, especially for the services industry.

The new Omicron variant of the coronavirus has been labeled of “concern” by the World Health Organisation because of its seemingly fast spread in South Africa and its many mutations. While much is still not known about the Omicron variant, several countries have scrambled to impose travel bans.

China, though, has long pursued a “zero Covid” approach, and seeks to maintain existing border restrictions.

“Looking ahead, most of the weakness in services should reverse in December unless— obviously a big caveat with the emergence of Omicron— there are new outbreaks,” according to economists with Capital. “In that case, the authorities would turn to more stringent controls to contain it.”