China’s manufacturing, services activity contract together for first time since Wuhan coronavirus outbreak

  • China’s official manufacturing purchasing managers’ index (PMI) fell to 49.5 in March, down from 50.2 in February.
  • Official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 48.4 from 51.6 in February.

Activity in both China’s manufacturing and services sectors simultaneously contracted for the first time in two years in March, data released on Thursday showed amid an ongoing coronavirus resurgence in the country.

The official manufacturing purchasing managers’ index (PMI) fell to 49.5, from 50.2 in February, according to the National Bureau of Statistics (NBS), with a reading below 50 indicating contraction.

The March figure was below the median forecast of a Bloomberg survey of analysts, which had predicted a fall to 49.8, and it was the lowest reading since dropping to 49.2 in October.

The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 48.4 in March from 51.6 in February. This was below the Bloomberg survey of analysts, which had predicted a fall to 50.3, and was the lowest reading since dropping to 47.5 in August.

The official March composite PMI, which includes both manufacturing and services activity, fell from 51.2 in February to 48.8 – the second-lowest reading since the index dropped to 28.9 in February 2020 at the height of the initial coronavirus outbreak.

“The official PMIs indicate that recent efforts to rein in the largest virus outbreak since early 2020 weighed heavily on activity this month, especially in services,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in his report that calls it “the biggest hit since Wuhan”.

Chinese authorities are sticking with their “dynamic zero-Covid” policy, which involves stamping out local outbreaks with strict preventive measures, and Shanghai authorities on Sunday ordered a snap lockdown covering different parts of the city across eight days.

“PMI weakened as the Omicron outbreaks in many Chinese cities led to lockdowns and a disruption of industrial production. As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

“The government has made it clear that the priority is to contain Omicron outbreaks, which indicates a willingness to sacrifice growth in the short term, if necessary.

“The lockdown policy is effective in containing outbreaks in the short term, but in the long term the economic costs could be significant.”

Within the official manufacturing PMI, the subindex for production in March fell to 49.5, down from 50.4 in February, while the subindex for new orders dropped to 48.8, up from 50.7 in February.

New export orders, meanwhile, fell to 47.2, compared with 49 a month earlier.

Within the official non-manufacturing PMI, the construction subindex rose to 58.1 in March from 57.6 in February, while the service subindex fell to 46.7 from 50.5.

“Recently, there have been clusters of outbreaks in many places in China. Coupled with a significant increase in international geopolitical instability, the production and operation activities of Chinese enterprises have been affected to a certain extent,” said senior NBS statistician Zhao Qinghe.

“The surveyed enterprises have said that, as the outbreak situation in some areas has been effectively controlled, suppressed production and demand will gradually recover, and the market is expected to pick up.”

China has already warned of strong headwinds facing its economy this year, including weakening expectations, contracting demand and supply shocks.

It has set its gross domestic product growth target for 2022 at “around 5.5 per cent”.

“We are paying close attention to the impact of this round of outbreaks on trade companies, especially on small, medium and micro-sized ones,” China commerce ministry spokeswoman Shu Jueting on Thursday.

“Judging from the current situation, some trade companies are affected by the outbreaks and are faced with phased problems such as choked productions and operations, poor logistics and transport, and so on.

“At the same time, the rising cost of raw materials, poor cross-border shipping, supply-chain bottlenecks and other problems have not been fundamentally alleviated. Trade companies, especially small, medium and micro-sized firms, are still facing greater operating pressure.”

Authors: Andrew Mullen, Orange Wang, SCMP

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