Chinese factory activity contracts amid Covid disruptions | Chinese economy

Chinese factory activity unexpectedly declined in July as sporadic Covid outbreaks disrupted the sector and a slowing global economy weighed on demand.

The official purchasing managers’ index (PMI) for the manufacturing sector fell to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said on Sunday. That was weaker than expected, below the 50 point mark separating expansion from contraction.

Indices tracking production and new orders fell in July, with the biggest contraction in activity occurring in energy-intensive industries, such as oil, coking coal and ferrous metals.

“The level of economic prosperity in China has dropped; the foundations for recovery still need to be consolidated,” said NBS senior statistician Zhao Qinghe.

China has been hit by new Covid-19 outbreaks since a two-month lockdown in Shanghai was lifted in early June. It imposed a lockdown in Xi’an city in early July, after cases of the Omicron sub-variant, known as BA.5, were detected.

Shenzhen, home to many tech companies, has pledged to “mobilize all resources” to curb a slowly spreading Covid outbreak, including the strict implementation of testing and temperature checks, and the lockdown of buildings affected by Covid.

The port city of Tianjin, which includes factories linked to Boeing and Volkswagen, also battled clusters of Covid-19 and closed some entertainment venues, kindergartens and tutoring agencies in July.

Weak demand has also dampened the recovery in China, with supply chain disruptions and high energy prices weighing on the global economy.

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Bruce Pang, chief economist and head of research at Jones Lang LaSalle, said the fall in China’s manufacturing PMI showed its economic recovery was fragile, following the fall in GDP in the second quarter of the year.

“Challenges to China’s GDP growth in the third quarter could be greater than previously expected,” Pang said.

China’s non-manufacturing PMI, which tracks the construction and service sectors, fell to 53.8 from 54.7 the previous month, showing slower growth in those parts of the economy.

China’s ruling Communist Party effectively acknowledged last week that the economy would not reach its official level 5.5Growth target in % this year. After a meeting of high-level leaders, state media reported that China will strive for the best possible outcome for the economy this year.

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