China’s factory activity drops, bogged down by more Covid controls

BEIJING — China’s factory activity fell in October due to frequent Covid outbreaks, the National Bureau of Statistics said Monday.

The official purchasing managers’ index for manufacturing fell to 49.2 this month, down from 50.1 in September, the data showed.

Economists had expected a print of 50, according to analysts polled by Reuters.

Readings below 50 indicate a contraction in business activity, while figures 50 above reflect expansion. The index surveys businesses on operating conditions.

The index has come in below 50 for six out of 10 months of the year so far.

Sub-indicators on factory employment, production, new orders and supplier delivery time all showed contraction in October compared to September.

“The decline in the manufacturing PMI was driven especially by a drop in the new orders sub-index (to 48.1 in October from 49.8 in September), pointing to weaker future demand,” Nomura’s Chief China Economist Ting Lu said in a note.

He pointed out the employment sub-index has now been in contraction territory for 19 straight months.

Scattered Covid outbreaks across the country have prompted tighter controls on business activity.

One of the companies most notably hit is Apple‘s supplier Foxconn, which said last week its factory in the city of Zhengzhou had a small cluster of cases.

However, Chinese financial news magazine Caijing reported, citing two Foxconn employees, that some workers knocked down dormitory isolation barriers and left the factory this weekend.

The report cited one factory employee as saying operations were normal, while Covid control policies had changed with varying implementation over the last few days.

Foxconn did not immediately respond to a CNBC request for comment.

In an online notice Sunday, municipal authorities announced plans to assist workers who wanted to leave the factory to return to their hometowns.

China’s services activity declined in October for the first time since May, data released Monday showed.

The non-manufacturing purchasing managers’ index came in at 48.7 in October.

However, the statistics bureau said sub-indicators for postal services, internet software and information technology services were above 60 in anticipation of a pickup in business for the Singles Day shopping festival in November.

Services and consumption have been weak since the pandemic began nearly three years ago.

Goldman Sachs’ analysis found the GDP contribution from hotel and restaurant services is nearly 20% below the 2019 trend.

Industrial sector GDP is in line with the 2019 trend, thanks to strong overseas demand, the analysts said.

They noted how agriculture has outperformed its pre-pandemic trend as Beijing has emphasized food supply security.