China factory activity contracts as Covid disruptions spread – Digital Journal

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China’s factory activity contracted for a second straight month in November as large parts of the country were hit by Covid-19 lockdowns and transport disruptions – Copyright AFP STR

China’s factory activity contracted for a second straight month in November, official data showed on Wednesday, as large parts of the country were hit by Covid-19 lockdowns and transport disruptions.

The purchasing managers’ index (PMI), a key gauge of manufacturing in the world’s second-largest economy, came in at 48.0, down from 49.2 in October and well below the 50-point mark that separates growth from contraction, according to data from the National Bureau of Statistics (NBS).

China is the last major economy welded to a zero-Covid strategy of stamping out outbreaks with strict lockdowns and mass testing, even as infections hit record levels this month, dampening demand and business confidence.

“In November, affected by multiple factors, including the wide and frequent spread of domestic outbreaks and the increasingly complex and severe international environment, China’s Purchasing Managers’ Index fell,” Zhao Qinghe, a senior statistician at NBS, said in a statement.

The November number was lower than the 49.0 reading forecast by Bloomberg analysts.

The manufacturing PMI has been in contractionary territory for all but four months of the year so far, as a summer of heat waves was booked by Covid lockdowns in major cities throughout the spring and fall.

Zhao said the domestic outbreaks in November caused “production activity to slow and product orders to fall,” noting “further fluctuation in market expectations.”

Activity fell at companies of all sizes during the month, with the Small Business PMI being the hardest hit at 45.6.

The non-manufacturing PMI stood at 46.7 points in November, also reflecting a contraction in activity and down from 48.7 points in October.

Zhao said that for transportation, accommodation, catering and entertainment in particular, “the industry’s total turnover fell significantly” as “some regions saw a relatively large impact from the pandemic.”

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

Meanwhile, rare nationwide protests have broken out among a population exhausted from nearly three years of zero covid, while authorities have offered mixed messages about transitioning away from the strategy.

“The virus situation continues to cloud the economic outlook,” Sheana Yue, China economist at Capital Economics, said in a note Wednesday.

“Most cities have started implementing localized lockdowns, similar to what we saw in April, which will continue to weigh heavily on service activity,” Yue said.

He warned that “there are few upsides that can outweigh the weakness” as a global recession puts pressure on export-focused companies in China.

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