China’s Manufacturing Activity Pummeled by Covid Restrictions

BEIJING—Readings of Chinese factory and service-sector activity worsened dramatically in April, falling to their lowest levels since the early days of the Covid-19 outbreak, as recent lockdowns in dozens of cities across the country shut factories and pummeled consumer spending.

China’s National Bureau of Statistics said Saturday that its official manufacturing purchasing managers index dropped to 47.4 in April, from 49.5 in March, falling to its lowest level since February 2020. The result fell short of the median forecast of 48.0 among economists polled by The Wall Street Journal, and well below the 50 mark that separates expansion from contraction.

The subindex of factory production plummeted to 44.4 in April from 48.8 in March, the statistics bureau said. The sharp decline came as factories reduced or halted production due to the spreading virus, said

Zhao Qinghe,

a senior official at the statistics bureau.

The rapid deterioration in the manufacturing reading offers a first glimpse into the stark economic cost of China’s zero-tolerance approach to the Omicron variant of the coronavirus, which put the entire northeastern province of Jilin and dozens of cities—including Shanghai, a bustling financial hub of 25 million residents—under weeks of lockdown. Most of the harshest measures were imposed in late March.

Worried about the highly transmissible variant and seeking to avoid a Shanghai-style hard lockdown, many other regional governments across the country pre-emptively curtailed people’s movements after detecting just a few infections, crushing economic activity.

Even regions with no Covid cases have been seriously affected by the current wave of concern spreading across the country. Apart from the closure of factories inside locked-down regions, trucks have been stranded on the road as local authorities bar outside traffic, snarling logistics networks.

Some factories otherwise approved to continue operations have been forced to halt production because of a lack of raw materials. Finished products, likewise, have been stuck in warehouses, unable to be delivered.

“Many enterprises reported increasing difficulties in logistics and transportation, as well as difficulties in the supply of major raw materials, poor sales of finished products, overstocking and so on,” Mr. Zhao said. As a result, he added, the production and operation of businesses up and down the supply chain were greatly affected.

The rapid economic cooling adds further pressure to Chinese policy makers’ hopes of meeting its official target of expanding gross domestic product by around 5.5% this year—a goal that is seen as increasingly difficult given rising risks from Covid-19 outbreaks, knock-on effects from the war in Ukraine, a sharp property-sector downturn and anemic consumer spending.

Factory output had already weakened in March as restrictions thinned workforces and gummed up supply chains. Retail sales, meanwhile, tumbled as Covid concerns and restrictions kept people from venturing outdoors and spending money.

Im 535196

A robot-operated vehicle-assembly line in Qingdao, eastern China, earlier this week.


Photo:

Cfoto/Zuma Press

The recovery from the current wave of outbreaks will likely be slower and more muted than the roaring rebound from the initial Covid outbreak in early 2020, said Julian Evans-Pritchard, senior China economist at Capital Economics. Mr. Evans-Pritchard points to weaker policy support from Beijing and the challenges facing the export sector, a key engine of the country’s economic rebound two years ago.

This time around, exports—already predicted to slow after two years of a bigger-than-expected boom—are showing particular vulnerability to the disarray in domestic production and transportation capacity.

The subindex tracking export orders dropped deeper into contraction territory, to 41.6 in April, from a reading of 47.2 in March. The subindex measuring total new orders, likewise, fell to 42.6 in April, from 49.5 the previous month.

Separately, China’s official nonmanufacturing purchasing managers index, also released Saturday and tracking both the services and construction industries, plunged to 41.9 in April from 48.4 in March. Nineteen out of 21 surveyed industries, including transportation, accommodation and catering, recorded contractions in activity, the statistics bureau said.

The 41.9 reading was China’s lowest since the 29.6 level recorded in February 2020, as the central Chinese city of Wuhan was put under strict lockdown.

The subindex measuring service activity tumbled to 40.0 in April, from 46.7 in March, while the subindex tracking construction activity dropped to 52.7 from 58.1 in March.

A separate private gauge of manufacturing activity, also released Saturday, pointed in the same direction. The Caixin China purchasing managers index, which is tilted more toward smaller companies, slipped to 46.0 in April from March’s 48.1.

China said its economy grew 4.8% in the first quarter when compared with a year earlier, though most of that growth was squeezed into the first two months of the year, before the current wave of Omicron infections.

Some economists have begun to predict that the economy could contract in year-over-year terms during the second quarter.

China, though, has rarely missed its economic growth target in years past. In recent days, the government has signaled more fiscal measures to stimulate the economy and ward off a slowdown.

In a Friday meeting of the Politburo, the Communist Party’s top decision-making body, leader

Xi Jinping

and other senior officials pledged to meet this year’s economic targets, describing infrastructure in particular as a lever to ramp up growth.

Economists at ANZ, an investment bank, compared the remarks on infrastructure spending to the massive stimulus package that Beijing unleashed in 2008 to revive the economy.

The government has also made preparations to ease off on a monthslong regulatory campaign against technology companies, the Journal has reported, part of the broader effort to arrest the rapid deterioration in the economic outlook.

Write to Jonathan Cheng and jonathan.cheng@wsj.com

Corrections & Amplifications
China’s official manufacturing purchasing managers index dropped to 47.4 in April, its lowest reading since February 2020. An earlier version of this article incorrectly said it was the lowest reading since March 2020.

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