BEIJING China's factory activity fell at a sharper pace in September as strict COVID lockdowns disrupted production and dampened sales, a private sector survey showed on Friday.
The manufacturing sector was heavily impacted by weaken global demand for Chinese goods, with new export orders shrinking at the fastest pace in four months.
In September, the PMI of Caixin Markit Manufacturing Manufacturing Managers fell more than expected to 48.1 from 49.5 in August, below the 50-point that separates growth from contraction on a monthly basis.
The reading was not changed from August according to analysts, according to a Reuters poll.
The private survey said that the COVID 19 epidemic was the biggest impact for firms.
The manufacturing supply and demand contracted at the same time. The COVID situation in Hainan province improved, but the severity of outbreaks worsened in many other areas and containment measures limited supply and demand in manufacturing, said Wang Zhe, senior economist at Caixin Insight Group.
The manufacturing industry reported a drop in sales, with sub-indexes for total new orders and new export orders contracting for the second straight month in September.
The firm cut production for the first time in four months and slashed jobs for the sixth month in order to reduce costs, adding to worries about the weak labour market.
Manufacturers have scaled back their purchasing activity, with the sub-index of quantity of purchases falling for the second month in September due to fewer new orders and efforts to reduce overall stock levels.
Input costs went down for the second month in a row as prices of raw materials declined due to softer demand.
In order to boost sales, producers looked to pass on some cost savings to customers, which led to the sub-index of output prices dropping at the fastest pace since December 2015.
There are major problems with the economy, such as insufficient employment, sluggish demand and unstable expectations. In view of this, policy implementation should focus on promoting employment, granting subsidies, boosting demand and fostering market confidence by sending policy signals, said Wang.
China escaped an economic contraction in June, weighed down by a deepening property slump, a slowing consumption and strict COVID 19 restrictions. Activity was weighed down by the sporadic virus flare-ups in late August and early September.
With few signs that China will ease zero-COVID soon, many analysts believe that the economy will grow by just 3 per cent this year, which would be the slowest since 1976, excluding the 2.2 per cent expansion during the initial COVID hit in 2020.
Nomura has slashed its forecast on China's GDP growth to 2.7 per cent for 2022.