China factory activity worsens in Dec after sudden reversal of Covid Zero

China’s manufacturing activity contracted at a steeper pace in December as the country suddenly reversed its Covid Zero policy and the virus swept through major cities, causing people to stay home and businesses to shut.
 

The official manufacturing purchasing managers index fell to 47 this month from November’s 48, the National Bureau of Statistics said Saturday. That was worse than an estimate of 47.8 in a Bloomberg survey of economists.

The non-manufacturing index, which measures activity in the construction and services sectors, declined to 41.6 from 46.7 in November, lower than the consensus estimate of 45. A reading below 50 indicates contraction, while anything above suggests expansion.

The December data reflects the month when the world’s second-largest economy finally ditched its long-held Covid Zero policy in an abrupt reversal. 

High-frequency data suggested that economic activity was pushed off a cliff as surging cases led people to stay home and avoid shops, while factory production was capped. There was even some disruption to government operations.

The policy shift and spread of Covid may create more snags for the economy through the first quarter of 2023, with a likely travel rush during the upcoming Lunar New Year holiday potentially exacerbating the situation. 

China’s economy was faltering before the Covid Zero pivot as the curbs to prevent the spread of infection depressed economic activity and kept the country isolated from the rest of the world. A persistent property market slump, sluggish consumer demand and waning overseas appetite for Chinese goods contributed to the downturn, and gross domestic product is likely to expand just 3% in 2022.

Economists see an increasing possibility for a faster and stronger rebound in 2023 now that Covid Zero has ended. After the likely slow start in the January-to-March period, growth is projected to pick up to 4.8% for the year, according to the median estimate of economists surveyed by Bloomberg.