BEIJING: China’s manufacturing activity contracted in March as authorities locked down cities to curb a surge in Covid cases, damaging the outlook for economic growth even before the latest outbreak in Shanghai began wreaking havoc.

       The official manufacturing purchasing managers’ index (PMI) fell to 49.5, breaching the 50-mark that separates expansion from contraction for the first time in five months, data from the National Bureau of Statistics (NBS) showed yesterday

       That was lower than the median estimate of 49.8 in a Bloomberg survey of economists.

       The non-manufacturing gauge, which measures activity in the construction and services sectors slumped to 48.4, below the consensus forecast of 50.3.

       China is battling its worst outbreak since the initial flareup two years ago.

       Soaring case numbers prompted authorities to lock down major cities including the country’s tech and manufacturing hub Shenzhen and automotive city Changchun this month.

       Economists have also pointed out the disruption so far does not completely capture the entire impact from restrictions in the financial centre Shanghai, which is still battling a significant Covid outbreak.

       “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 Ltd.

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

       The benchmark CSI 300 Index dropped as much as 0.9% after the release of the data.

       Technology and industrial stocks led the decline.

       Areas covering roughly 30% of China’s gross domestic product (GDP) are affected by the outbreaks, Goldman Sachs Group Inc estimates, with the economic costs of the lockdowns likely amounting to at least US$46bil (RM193bil) a month, or 3.1% of GDP, according to a researcher from Chinese University of Hong Kong.

       Several economists have already downgraded their growth forecasts for the first half of the year as lockdowns were expanded.

       The March data is the “best evidence and forward indicator of the blow the latest Covid outbreak has dealt to the economy,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.

       Smaller firms continued to suffer, while activities at larger firms kept expanding.

       The manufacturing PMI for large firms stood at 51.3 in the month, while those for medium and small sized companies were at 48.5 and 46.6.

       China’s Premier Li Keqiang reiterated Wednesday that China will stick to its full-year growth target of “about 5.5%” despite new challenges and increased downward pressures.

       He called on the nation to prioritise stable growth and to draft contingency plans to deal with possible greater uncertainties at a regular state council meeting.

       Policies to stabilise growth should be rolled out as early as possible, while measures that would dampen market expectations should be avoided, he said.

       Companies like Apple Inc supplier Foxconn temporarily halted production in Shenzhen during a week-long lockdown of the city.

       In Changchun, an industrial hub that accounted for about 11% of China’s total annual car output in 2020, automakers like Toyota Motor Corp were forced to shut.

       Some businesses resumed production by adopting a so-called closed loop system in which workers were kept at factory locations and tested regularly.

       The disruptions affected “the stability of manufacturing supply chain,” said Zhao Qinghe, a senior statistician at the NBS, noting the index measuring delivery time of suppliers fell to 46.5, the lowest since February 2020.

       The index measuring new export orders dropped further into contraction, falling to 47.2 in March from 49 in the previous month.

       Orders were reduced or cancelled at some companies due to the “recent escalation in geopolitical conflicts,” the NBS said.

       “The economy took a hit in March. But the declines almost certainly understate the degree of the deterioration in business conditions.

       “The April PMIs will most likely reveal a much more pronounced lurch downward. The data give a green light to more policy stimulus,” said economist Chang Shu.

       Employment was also affected during the month, with the sub-index for manufacturing jobs dropping to 48.6 in March from 49.2 in February and non-manufacturing jobs also worsened.

       “Some companies surveyed said due to the Covid impact, there was insufficient employees working in their posts, logistics were clogged, and delivery cycle was extended,” Zhao said.

       Price pressures on companies also increased during the month, due to factors including the recent sharp fluctuations in international commodity prices, according to the NBS.

       Input and output prices rose to 66.1 and 56.7 respectively. In-person services sectors like restaurants and retail shops were hit hard by the renewed lockdowns and tightened social distancing measures, dragging the official non-manufacturing index lower.

       Economists say the damage to consumption could be deeper and more long-lasting than to production.

       Construction activities, however, picked up slightly as temperatures rose, Zhao said. The sub-index rose to 58.1 in March.

       The state council on Wednesday urged faster issuance of the local government special bonds to expand effective investment.

       The world’s second-largest economy was already struggling even before the current wave of outbreaks following a slump in the property market and weakness in consumer spending.

       The government has pledged more monetary and fiscal stimulus to help bolster the economy and meet its annual growth target. — Bloomberg