October purchasing managers’ indexes came in below 50 for both the manufacturing and non-manufacturing sectors, indicating contractions from the previous month. The manufacturing PMI had briefly ticked above 50 in September, while the non-manufacturing index last fell below the boom-or-bust line in May, during the protracted lockdown in Shanghai.
The composite PMI, which includes both categories, also sank below 50 for the first time since May.
“The coronavirus outbreak is the main reason for the decline in the manufacturing PMI,” said Zhang Liqun, a researcher at the Development Research Center of China’s State Council cabinet. The new orders index, a component of the broader PMI, hit its lowest point since the Shanghai lockdown hurt the economy in April.
The non-manufacturing reading likely was affected by key political events in October – most notably the Communist Party national congress, which concluded Oct 22. China tightened its coronavirus clampdown, with government workers directed to commute straight to their offices and back home with no detours.
“The travel restrictions that came with the party congress weighed on sentiment in the non-manufacturing sector,” said Takamoto Suzuki, manager of economic research at Japanese trading house Marubeni’s Chinese arm.
Ting Lu, chief China economist at Nomura, expects the zero-Covid policy to last at least until March. He sees real gross domestic product growth potentially turning negative this quarter amid a slowdown in exports and the chill in the housing market.
The stagnating economy weighs particularly heavily on private enterprises, which lack many of the advantages that state-owned companies enjoy such as lower fundraising costs.
The business sentiment index of the Cheung Kong Graduate School of Business, which includes many private companies and better reflects the fortunes of small and midsize businesses, sank for a second month to 42.5 in October. It has languished below 50 since April as the outlook for sales and access to capital have failed to improve.
Government data on industrial profits, including manufacturers and electricity providers, shows a split for the first nine months of 2022. State-owned enterprises rose 4% on the year, while private businesses dropped 8%.
Private enterprises had higher overall sales than their state-owned counterparts, 38 trillion yuan (US$5.24 trillion) to 27 trillion yuan. But their profits were lower at 1.7 trillion yuan to 2.1 trillion yuan, leaving them with fewer resources to compete.