China’s factory activity contracts on Covid curbs

China’s factory activity contracts on Covid curbs

China’s factory activity contracts on Covid curbs

China’s factory activity shrank in October, official data showed Monday, after industries were hit by strict Covid lockdowns.  

The Purchasing Managers’ Index (PMI) -- a key gauge of manufacturing in the world’s second-biggest economy -- came in at 49.2, down from September’s 50.1 and below the 50-point mark separating growth from contraction, according to data from the National Bureau of Statistics (NBS).    

Sporadic Covid-19 lockdowns around China have dampened demand and business confidence.    

The manufacturing PMI has been in contraction territory for six out of the past eight months, as sweeping Covid restrictions paralysed major industrial cities such as Shanghai, Shenzhen and Chengdu and a summer of searing heat hit production.  

“In October, affected by the frequent appearance of domestic outbreaks, China’s purchasing managers’ index declined,” NBS senior statistician Zhao Qinghe said in a statement.  

Zhao added that “the foundation for China’s economic recovery and development needs to be further consolidated”, noting both weakened demand and rising raw material prices.    

While activity at larger businesses expanded in October, work at small and medium-sized enterprises contracted significantly, with Zhao saying “the pressure on production and operation at small and medium-sized enterprises has increased”.    

The non-manufacturing PMI came in at 48.7 points in October, a sharp decline from 50.6 in September and “below a critical point”, Zhao said in the statement.    

Zhao added that Covid outbreaks in October had hit the service industry especially hard, with activity in transport, accommodation and food and beverage businesses falling during a traditional peak period coinciding with week-long national holidays.    

“We don’t expect the zero-Covid policy to be abandoned until 2024, which means virus disruptions will keep in-person services activity subdued,” Capital Economics analyst Zichun Huang said in a note on Monday.  

“The deepening global downturn will continue to weigh on exporters. And officials are still struggling to put a floor underneath the property market,” Huang added.    

Chinese leaders have set out an annual economic growth target of about 5.5 percent, but many observers think the country will struggle to hit the target, despite announcing a better-than-expected 3.9 percent expansion in the third quarter.    

And officials have shown no sign that they intend to ease the country’s zero-Covid strategy, with President Xi Jinping last week promoting Li Qiang, who oversaw a debilitating two-month lockdown in Shanghai, to the second-most powerful post in the Communist Party.     

The economic slowdown has also been exacerbated by a crisis in the massive property sector, where a series of debt-laden developers have defaulted on loans.