China’s Economy Slows Rapidly as Covid Zero Lockdowns Bite

by BLOOMBERG

CHINA’S economic activity contracted sharply in April as the lockdown of Shanghai and other areas around the country to contain a widespread Covid-19 outbreak closed factories, snarled roads and stopped people from consuming, escalating concerns about further disruption to global supply chains.

The slump was widespread in April, with factory output contracting further and services demand much weaker than forecast. The purchasing managers indexes are the first official April data and show the extent of the damage to the economy due to the outbreak and the government’s Covid Zero policies.

Factory activity fell to the lowest level in more than two years, with the official manufacturing PMI dropping to 47.4 from 49.5 in March, according to data released by the National Bureau of Statistics on Saturday. That was largely in line with the median estimate of economists.

The non-manufacturing gauge, which measures activity in the construction and services sectors, plunged to 41.9 from March’s 48.4, hitting the lowest since February 2020 and well below the consensus forecast of 46. A reading above 50 indicates expansion, while anything under indicates contraction.

The deterioration in manufacturing activities was due to sharper declines in both production and demand, the statistics bureau said in a statement. The latest Covid outbreaks, which have hit multiple places across the country, have forced some enterprises to reduce or even stop production.

Activities in the service industry fell sharply “due to the severe impact from the outbreaks,” Zhao Qinghe, an NBS senior statistician, said in the statement. Business activity contracted in 19 of the 21 surveyed sectors, including air transport, accommodation and catering, he said.

The data showed new orders received in April fell at a faster pace, indicating weaker domestic demand, while new export orders also slid sharply.

An index measuring the delivery time of suppliers dropped to 37.2 from 46.5, suggesting that it’s taking much longer for raw materials to reach their manufacturing customers, despite repeated vows by authorities to keep transportation and logistics running smoothly. The importance of guaranteeing supply chains was reiterated by the Politburo on Friday.

Meanwhile, inventories of finished goods rose to the highest level in more than a decade, with finished products likely piling up in warehouses due to both the slump in demand and the difficulty of getting goods on to trucks.

“Many companies said logistics and transportation difficulties have increased,” Zhao said. “Some even experienced difficulties in getting supplies of main raw materials and key components, poor sales of finished products, and the backlog of inventory, among other problems.”