China's factory activity expected to shrink for third month in a row in September - Reuters

People wearing protective face masks walk on a street following the coronaviruses outbreak in Shanghai, the COVID 19 outbreak.

BEIJING Reuters - China's factory activity is expected to have shrunk for a third month in a row in September, a Reuters poll showed on Thursday, as strict COVID measures in big cities and weakening exports growth hit orders and business confidence.

The official manufacturing manager's index PMI was projected to be 49.6 for this month, a touch higher than 49.4 in August, according to the median forecast of 26 economists polled by Reuters.

China's economy showed some improvements in August with more than expected growth in factory output and retail sales, but protracted COVID restrictions, weakening exports momentum and the continued drag from a stressed property sector have dimmed the outlook.

The data showed that the profits at China's industrial firms shrank at a faster pace in January-August.

On September 1th, Chengdu, a mega city with a population of 21 million in the southwestern Sichuan province, was shut down after COVID cases were detected, becoming the largest Chinese metropolis to have been hit with curbs since Shanghai's lockdown in April and May.

In early September, Shenzhen, the tech hub in southern China with a population of 18 million, has adopted tiered anti-virus measures.

Min Joo Kang, an economist at ING, said in a note that this could lead to falls in orders, employment and business confidence.

Many economists believe that China's zero-COVID policy is a major constraint on growth.

While steel demand and production grew in the first three weeks of September compared to August, analysts at Goldman Sachs pointed out that there was a soft underbelly with export growth appearing to have deteriorated further.

In the first 10 days of September, container throughput declined 15% year-on-year, due to port disruptions due to typhoons, which could drag on manufacturing activity growth, they said.

Goldman Sachs revised down its 2023 China GDP growth forecast to 4.5%, from a previous projection of 5.3%, and predicted that Beijing is unlikely to reopen before the second quarter next year.

The PMI, which focuses on big and state-owned firms, and its survey for the services sector, will be released on Friday.

The PMI for the private sector of Caixin Manufacturing will be published on Friday.