China’s Factory Activity Shrinks as Cities go into Lockdown

China’s factory activity shrank in March, as the country’s worst Covid outbreak in two years brought sporadic lockdowns and factory closures.

The Purchasing Managers’ Index (PMI) — a key gauge of manufacturing activity — slid to 49.5, just below the 50-point mark separating growth from contraction, according to data from the National Bureau of Statistics.

It was the first contraction in five months and was lower than expectations from economists polled by Bloomberg.

The fall comes as authorities struggle to stamp out coronavirus outbreaks with restrictions and lockdowns on key manufacturing hubs such as Shenzhen in the south and Changchun in the northeast.

The worsening situation puts pressure on policymakers to step up fiscal and monetary support. On Wednesday, China’s Premier Li Keqiang reiterated China will stick to its full-year growth target of about 5.5% despite new challenges and increased risks. At a regular State Council meeting, he said stable growth should be a priority and contingency plans should be drafted to deal with possible greater uncertainties.

However, economists warn the situation could worsen in April, denting growth for the second quarter as uncertainty grows about the scope, severity and length of China’s lockdowns. Areas covering roughly 30% of China’s GDP are affected by the outbreaks, according to Goldman Sachs Group Inc. Natixis SA estimates a 1.8 percentage point cut to the first-quarter growth rate because of the Covid controls.

“As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April. The government has made it clear that the priority is to contain omicron outbreaks, which indicates the willingness to sacrifice growth in the short term if necessary.” Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

The decline in factory activity is set to affect other economies around the world if it continues. In Kenya, China is the largest importer of goods followed by India and UAE.

In the past year, Kenya spent 60 per cent of its export earnings on China-made goods. Imports from China hit a high of Sh441 billion in 2021, a 22 per cent jump from the previous year, while Kenya’s total export earnings stood at Sh739 billion.

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