BEIJING -- China's factory activity fell unexpectedly in October weighed by softening global demand and strict domestic COVID 19 curbs that hit production, travel and shipping in the world's second-largest economy.
China's economic growth beat expectations in the third quarter, but persistent COVID 19 curbs, a prolonged property slump and global recession risks are clouding a more robust revival in factory and consumer activity.
The official manufacturing purchasing managers' index fell to 49.2 from 50.1 in September, the National Bureau of Statistics NBS said on Monday.
The result broke below the 50 point mark that separates growth from contraction, according to a Reuters poll which said the PMI would come in at exactly 50.0, which would have suggested no change in the pace of activity.
The PMIs point to a further loss of momentum in this month as the virus disruptions worsened and export orders under pressure, said Zichun Huang, Economist at Capital Economics.
We think the economy will struggle into 2023 with the zero-COVID policy here to stay. The PMI for non-manufacturing manufacturing, which looked at service sector activity, fell to 48.7 from 50.6 in September.
After the PMI was released, the mainland Chinese indexes fell.
The offshore yuan fell 0.32 per cent against the dollar, but rose slightly later.
There were 31 cities that implemented various levels of lockdowns or some kind of district-based control measures, affecting around 232 million people, according to a research note by Nomura.
Economists think that China's current zero-COVID policy is a major constraint on the economy and expect restrictions to be in place for some time after this month's Communist Party Congress.
That raised concerns that Beijing's new political leadership might prioritise containing COVID 19 over economic growth.
"We don't expect the zero-COVID policy to be abandoned until 2024, which means that virus disruptions will keep in-person services activity subdued," Huang, a spokeswoman for Capital Economics, said.
The outlook for the world's second-biggest economy was weighed down by the slowing of exports, the yuan's weakness against the U.S. dollar and the yuan's weakness against the U.S. dollar.
The latest Reuters poll predicted that China will miss its annual growth target of around 5.5 per cent, with the latest growth forecast for 2022 at 3.2 per cent. China's growth could pick up to 5.0 per cent in 2023, according to the poll.
The manufacturing PMI survey pointed out that demand was weak with the new orders subindex showing contraction for the fourth month in a row.
The rising interest rates, inflation, and the war in Ukraine have hurt the manufacturers' ability to cope with falling external demand.
Concerns about the weak labour market, which is weighing heavily on consumption and consumer confidence, has led to the fact that factories have had to cut their payrolls to reduce costs. The employment index has declined since March 2021.
The PMI is mainly focused on big and state-owned firms. The PMI of the private sector of Caixin Manufacturing will be published on Tuesday.
Bruce Pang, chief economist at Jones Lang Lasalle, said China needs to accelerate the construction of major projects and expand investment in the fourth quarter, a traditional construction season, in order to stabilise the economy.