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China's March factory activity contracts on COVID resurgence

Output, services slump together for first time since 2020: PMI

The world's second-largest economy could further slow as authorities restrict production and movement in many cities.   © Reuters

BEIJING (Reuters) -- Activity in China's factory and services sectors swung into negative territory in March, an official survey showed on Thursday, contracting simultaneously for the first time since the peak of the country's COVID-19 outbreak in 2020.

The official manufacturing Purchasing Managers' Index (PMI) fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said, while the non-manufacturing PMI eased to 48.4 from 51.6 in February.

The last time both PMI indexes simultaneously were below the 50-point mark that separates contraction from growth was in February 2020, when China was grappling with the initial outbreak of the new coronavirus.

The world's second-largest economy revved up in the first two months of 2022, with some key indicators blowing past expectations. But it is now at risk of slowing sharply as authorities restrict production and mobility in many cities, including Shanghai and Shenzhen, to stamp out a rash of COVID outbreaks.

"Recently, clusters of epidemic outbreaks have occurred in many places in China, and coupled with a significant increase in global geopolitical instability, production and operation of Chinese enterprises have been affected," said Zhao Qinghe, senior NBS statistician.

The declines below the 50-point threshold clearly show the overall level of China's economic activity has declined, Zhao said in a statement accompanying the data release.

Shanghai's COVID-19 lockdown has roiled auto production in recent days as two major suppliers joined Tesla TSLA.O in shutting plants to comply with measures to control the spread of the coronavirus.

"PMI weakened as the omicron outbreaks in many Chinese cities led to lockdowns and disruption of industrial production," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

"As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April."

Chinese Premier Li Keqiang this month announced a slower economic growth target of around 5.5% this year -- which some analysts deemed to be ambitious, given the slump in the property market, weak consumption and new COVID-19 outbreaks.

To cushion the impact of new COVID-19 lockdowns, authorities have unveiled steps to support business, including rent exemptions for some small services sector companies.

The central bank, which kept its benchmark interest rate for corporate and household lending unchanged in March, is expected to cut rates and lower reserve requirements for banks as downward economic pressures build, analysts say.

China's official composite PMI, which combines manufacturing and services, stood at 48.8 in March compared with 51.2 in February.

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