China's Factory Activity Set to Slump Close to Contraction

China’s factory activity is likely to have shown no growth in October and edged close to contraction, economists said in response to a poll on Friday.

The poll forecasted the official Purchasing Manager’s Index (PMI) to be 50.0 in October, down from 50.1 in September and teetering on the edge of decline.

The 50-point mark separates contraction from growth.

Covid Batters Confidence

The world’s second-largest economy has continued to fight its spread with lockdowns, mass testing and quarantines, which has hit economic growth and caused significant disruption to businesses.

Optimism among US businesses in China has hit record low levels, an annual survey showed on Friday, while weak global demand also weighs heavily on exports.

On Thursday, data showed profits at China’s industrial firms shrank at a faster pace in January-September.

No End In Sight

Economists do not expect Covid-19 measures to ease anytime soon after the Communist Party Congress concluded over that containing Covid-19 will take precedence over economic growth.

“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,” said Sheana Yue, China economist at Capital Economics.

Chinese cities from Wuhan in central China to Xining in the northwest are doubling down on Covid curbs, sealing up buildings, locking down districts and throwing millions into distress.

Economic Woes

“China’s struggling growth trajectory is not just about Covid-related restrictions,” said analysts at Oxford Economics in a research note.

“The economy is facing significant structural headwinds that will limit GDP growth. We forecast China’s growth will average about 4%-4.5% over the next five years or so.”

The official manufacturing PMI, which largely focuses on big and state-owned firms, and its survey for the services sector, will be released on Monday.