HONG KONG—China’s factory activity contracted in October after a short-lived improvement, a fresh sign of the toll from the country’s stringent Covid policies and of fading global demand for Chinese-made goods.
The official purchasing managers index for manufacturing fell to 49.2 from 50.1 in September, the National Bureau of Statistics said Monday. The result fell short of the 49.7 median forecast of economists polled by The Wall Street Journal, underscoring the vulnerability of China’s economy to its pandemic-control policies. A reading below 50 indicates contraction in activities.
The official nonmanufacturing
which includes services and construction, also slipped into contraction, falling to 48.7 from 50.6 in September. The October gauge for services alone fell to 47 from 48.9. That was its lowest level since April, when a monthslong lockdown hit China’s commercial capital and manufacturing hub of Shanghai.
After exiting the lockdown in June, the city and all 30 of the other provincial-level regions have had sporadic, low-level outbreaks. The repeated recurrence of the virus has done little to undermine Chinese leader
determination to stick with the zero-Covid strategy, which involves mass testing, quarantines and sweeping lockdowns to crush outbreaks as soon as they happen.
On Monday, Shanghai Disney Resort, including the theme park and shopping areas, were closed again under the city’s Covid restrictions, the company said. Shanghai Disneyland was shut for months under the earlier blanket lockdown of the city. Universal Beijing Resort closed for deep cleaning last week after at least one positive case was traced to the theme park.
The PMI readings dampen hopes for a sustained recovery following stronger-than-expected 3.9% gross-domestic-product growth in the third quarter. They also raise the question of what will drive the world’s second-largest economy, especially as the looming risk of recessions in the U.S. and other major trading partners is expected to sap demand for Chinese exports.
China’s growth slowed sharply over the past year, dragged down by a deepening real-estate slump and sluggish consumer spending. Government-led investment in infrastructure and other projects have propped up the economy in the short-term, but are seen by many economists as wasteful and an unsustainable source of growth.
“The foundation for our country’s economic recovery needs to be further stabilized,”
a senior statistician at the National Bureau of Statistics, said in a statement Monday.
Investor concerns over China’s economic outlook have deepened since Mr. Xi tightened his grip on power at this month’s Communist Party Congress, leading to broad selloffs of Chinese stocks and other assets. Mr. Xi was appointed China’s leader for a third term at the twice-a-decade party meeting, stacking the ruling Politburo with loyalists. He gave no indication that China’s strict pandemic controls would ease in the near future.
Monday’s data point to the rising risk of disruption to factories and supply chains, as new cases of the virus emerge in key manufacturing and logistics hubs.
An outbreak in the Henan provincial capital of Zhengzhou has hit production at the world’s biggest assembly centers for
Foxconn Technology Group
—Apple’s biggest supplier—shipped about $32 billion of products overseas from Zhengzhou in 2019, making its branch in the city the country’s largest exporter, according to a government-backed think tank.
Many of the hundreds of thousands of workers at the Foxconn site have been placed in isolation in a bid to stop the virus from spreading. Many others told the Journal that they were too frightened to continue working there, and that many of their colleagues have left and are trying to return home.
China reported more than 2,600 new locally transmitted cases of Covid for Sunday, more than double the daily number from a week earlier, according to official data. Daily new infections recorded Sunday in Guangdong province, one of China’s biggest manufacturing and export centers, rose sevenfold from a week earlier, the data show.
As of Oct. 28, cities accounting for 47% of China’s gross domestic product were under some form of mobility restrictions, according to estimates by economists from
Further lockdowns could drag on production and exports in November, ING economists wrote in a note on Monday, urging clients to be cautious about China’s growth prospects in the coming months.
Beijing’s Covid controls continue to weigh on Hong Kong too, with the Chinese-controlled territory’s GDP shrinking 4.5% in the third quarter from a year earlier, according to government advance estimates released Monday, compared with a 1.3% contraction in the second quarter. The fall was driven by the disruption to cargo flows coming from the mainland, the government said.
As China’s Covid restrictions continue, economists fear there will be a permanent scarring effect as more manufacturers and service providers lay off workers and slash wages. The employment subindex for October’s manufacturing PMI slipped to a five-month low of 48.3.
And China is unlikely to be able to count on exports—a key driver of growth since the start of the pandemic—to cushion the blow.
A subindex of the manufacturing PMI that measures new orders fell to 48.1, the lowest level in six months. Export growth slowed to 5.7% year-over-year in September, compared with the 13.3% average gain of the previous eight months.
The World Trade Organization earlier this month predicted the impact from the Ukraine war and global inflation would mean growth in global trade for 2023 of 1%, from its earlier forecast of 3.4%.
Shuanghe Electron Instrument Co., which mainly exports thermometers to the U.S. and Europe, cut its workforce to 380 from more than 500 last year as sales collapsed. New orders slumped more than 40% this year from a year earlier, said Zhang Zhuyao, general manager of the company based in the southeastern city of Ningbo.
“We’ve never seen such a big drop in orders in the past 40 years,” he said.
—Grace Zhu and
contributed to this article.
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