China’s manufacturing activity unexpectedly shrank in October as global and domestic demand and stringent COVID-controlled measures hurt production.

Reuters cited official data from China’s National Bureau of Statistics (NBS) released on Monday, October 31, saying that the country’s manufacturing purchasing managers’ index (PMI) for October was at 49.2, down from 50.1 in September. 

The official figure is below Reuters’ forecast of 50.0 leased a couple of days earlier from economists, which means there was no change in manufacturing activity.

A reading below 50.0 indicates contraction, while the number above reflects expansion. 

In addition, the official non-manufacturing purchasing managers’ index for the month was 48.7, down from 50.6 in September.

The country’s composite PMI, gauging manufacturing and services activity, stood at 49.0, compared to last month’s reading of 50.9.

Experts consider Beijing’s Zero-COVID policy a significant hindrance to its economic growth, significantly disrupting business operations and hitting multiple sectors. 

During the Chinese Communist Party’s congress two weeks ago, Chinese leader Xi Jinping did not indicate easing the policy. Economists raised concerns that the new leadership will keep COVID measures unchanged, at least in the foreseeable future. 

Sheana Yue, a China economist at Capital Economics, told Reuters, “In terms of zero-COVID, the signals, coming out from the congress, suggest that it will still be here to stay for some time. And we think any meaningful shift away from that will only happen in 2024.” 

Despite China’s GDP growth beating expectations in the third quarter, persistent COVID restrictions, an ongoing property crisis, and global weakening demand could hurt the recovery in the longer term.Last week, a survey from the American Chamber of Commerce showed that optimism among American firms in China has reached a record low as “the impact of ongoing COVID-related restrictions is negatively impacting business confidence and leading to lower investment.”

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