China’s factory activity contracts as Covid disruptions spread

China is the last major economy welded to a zero-Covid strategy of eliminating outbreaks with strict quarantines and mass testing even as infections reached record highs this month, dragging down demand and business confidence. “In November, impacted by multiple factors including the wide and frequent spread of domestic outbreaks, and the international environment becoming more complex and severe, China’s purchasing managers’ index fell,” NBS senior statistician Zhao Qinghe said in a statement.

November’s figure was lower than the 49.0 reading predicted by Bloomberg analysts. The manufacturing PMI has been in contraction territory for all but four months of the year so far, as a summer of heat waves was bookended by Covid lockdowns in major cities during the spring and autumn.

Zhao said domestic outbreaks in November caused “production activity to slow down and product orders to fall”, noting “increased fluctuation in market expectations”. Activity fell at businesses of all sizes during the month, with the PMI for small enterprises hit hardest at 45.6. The non-manufacturing PMI came in at 46.7 points in November, also reflecting a contraction in activity and down from 48.7 points in October.

Zhao said that for transport, accommodation, catering and entertainment in particular “the total industry business volume fell significantly”, as “some regions saw a relatively large impact from the pandemic”. Chinese leaders have set an annual economic growth target of about 5.5 percent, but many observers think the country will struggle to hit it, despite announcing a better-than-expected 3.9 percent expansion in the third quarter.