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China's manufacturing activity drops despite lifted COVID restrictions

China's manufacturing activity contracts sharply in December for third month in a row

December 31, 2022
A worker produces face masks at a factory in Handan, in Chinas northern Hebei province on December 26, 2022. — AFP
A worker produces face masks at a factory in Handan, in China's northern Hebei province on December 26, 2022. — AFP

BEIJING: China's manufacturing activity contracted sharply in December for the third month in a row, according to official figures released Saturday, despite Beijing's loosening of COVID restrictions at the beginning of the month.

The Purchasing Managers' Index (PMI) — a key gauge of manufacturing in the world's second-biggest economy — came in at 47 points, down from November's 48, and well below the 50-point mark separating growth from contraction, according to data from the National Bureau of Statistics.

For more than two years, China had insisted on a zero-Covid strategy of stamping out outbreaks with strict quarantines, lockdowns and mass testing -- a hardline policy that reverberated across the global economy.

On December 7, Beijing abruptly loosened pandemic restrictions, but despite that, the country is still struggling to recover due to a surge in Covid patients.

"China's economic prosperity has generally declined," the NBS said in a statement.

NBS senior statistician Zhao Qinghe said: "The epidemic has had a significant impact on business production and demand, staff presence, logistics and distribution".

The index has not been in positive territory since September.

China's zero-Covid strategy was based on widespread testing, strict monitoring of movement, and quarantine for those testing positive.

Those measures, which led to unannounced plant closures, disrupted supply chains and forced some companies to close permanently.

For its part, the non-manufacturing PMI — which includes the services and construction sectors — also contracted further this month, to 41.6 points from 46.7 in November.

The government has set a growth target of about 5.5% this year, after reaching its goal of more than 8% in 2021.

But many economists now consider the 2022 target unrealistic.

China will unveil its gross domestic product (GDP) performance for the year in January.

China announces nationwide loosening of COVID restrictions

On December 7, China announced a nationwide loosening of Covid restrictions following protests against the hardline strategy that grew into calls for greater political freedoms.

Anger over China's zero-Covid policy — which involved mass lockdowns, constant testing and quarantines even for people who are not infected — stoked unrest not seen since the 1989 pro-democracy protests.

Under the new guidelines announced by the National Health Commission, the frequency and scope of PCR testing — long a tedious mainstay of life in zero-Covid China — will be reduced.

Lockdowns will also be scaled down and people with non-severe Covid cases can isolate at home instead of centralised government facilities.

And people will no longer be required to show a green health code on their phone to enter public buildings and spaces, except for "nursing homes, medical institutions, kindergartens, middle and high schools".

The new rules scrap the forced quarantines for people with no symptoms or with mild cases.