China’s March factory activity likely dwindled amid virus outbreaks

An employee works at an electric cable factory in Baoying, Jiangsu province July 23, 2006. REUTERS/Aly Song

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BEIJING, March 30 (Reuters) – Chinese factory activity likely declined in March, a Reuters poll shows, as the country imposed more mass testing and activity checks amid its worst resurgence in cases of COVID-19 since the beginning of 2020.

The official Purchasing Managers’ Index (PMI) for the manufacturing sector is expected to have fallen to 49.9 in March, its lowest level in five months, from 50.2 in February, according to median forecasts from 36 economists polled by Reuters Wednesday.

A reading below 50 indicates a contraction from the previous month; anything above 50 indicates expansion.

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“We are lowering our forecast for the official manufacturing PMI to 49.0 from 49.5 previously, given the worsening COVID-19-related situation, particularly in Shanghai. The contraction in the real estate sector and the slowdown in the export growth are also negative for the manufacturing PMI in March,” Nomura said. analysts said in a note Friday. There is an official and an unofficial manufacturing PMI.

Following surprisingly upbeat economic activity data from the National Bureau of Statistics for January and February, analysts warned that March data could deteriorate significantly.

“Virtually all activity data points to a deepening of the slowdown in recent weeks, mainly due to the escalation of anti-Omicron measures and the deterioration of the real estate sector, and we believe that the situation could worsen further in the second quarter,” Nomura analysts said.

The latest resurgence of COVID-19 caused shutdowns in the financial hub of Shanghai and shutdowns in the technology hub of Shenzhen in March. Changchun, capital of the virus-hit northeast Jilin Province, has so far conducted more than 10 rounds of citywide tests on its residents.

The rapidly deteriorating pandemic and escalating control measures have added downward pressure on the world’s second-largest economy. Premier Li Keqiang said in March that the GDP growth target for 2022 was “around 5.5%”. Read more

China’s strict zero-COVID policy, anti-corruption scrutiny and tighter regulation of local governments’ hidden debt have changed the mindset of local officials, Goldman Sachs analysts said in a note on Monday. Generating strong economic growth no longer seems to be its priority.

As the economy suffers from virus outbreaks and faces headwinds such as the uncertain future effects of the Ukrainian conflict on the market, the government has promised a series of policies to support small businesses.

The Ministry of Finance said on March 24 that certain small businesses would be exempt from paying the 3% value added tax, as they are the main source of employment in the country. Read more

The official PMI, which largely focuses on large corporations and public companies, and its sister survey for the services sector, will be released on Thursday.

Caixin’s private manufacturing PMI will be released on Friday. Analysts expect its stock to drop slightly to 50 from 50.4 the previous month.

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Reporting by Ellen Zhang, Stella Qiu and Ryan Woo; Editing by Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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