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China factory activity struggles on Covid curbs, property woes

China’s factory activity continued to struggle in September, while services slowed, as the country’s economic recovery was challenged by lockdowns in major cities and an ongoing property market downturn.

The official manufacturing purchasing managers index rose to 50.1 from 49.4 in August, according to a statement from the National Bureau of Statistics on Friday. That compared with the median estimate of 49.7 in a Bloomberg survey of economists. Any figure higher than 50 indicates expansion.

The non-manufacturing gauge, which measures activity in the construction and services sectors, was 50.6, compared to 52.6 in August. That was lower than the consensus estimate of 52.4.

Separately, the Caixin private gauge of manufacturing activity fell to 48.1 in September from 49.5 in August. That was worse than the consensus expectation of 49.5.

China’s fragile economic recovery has been challenged this year by the country’s adherence to Covid Zero, a policy intended to stamp out infections that has caused intermittent turmoil to supply chains, taken a toll on spending and damaged business confidence. Data earlier this week showed profits of industrial firms shrank in the first eight months of the year.

The services index was “affected by Covid outbreaks and other factors,” NBS analyst Zhao Qinghe said in a news statement, adding that the driver of the fall in sentiment in that gauge was related to a fall in in-person activities such as retail sales, aviation and dining.

Chinese stocks edged higher in early trading. The benchmark CSI 300 Index climbed as much as 0.6 percent while a broader gauge of Asian equities declined.

The country’s mobility restrictions are estimated to have shaved about 1.1 percentage points from China’s GDP growth in the third quarter as consumption weakened, according to Natixis SA. The consensus estimate for growth this year is just 3.4 percent.

This month, Chengdu was locked down for about two weeks, reviving memories of painful curbs in Shanghai this spring and once again threatening economic output. The city of 21 million people, though, managed to contain the outbreak faster than Shanghai did.

On top of Covid restrictions, the country is also contending with a severe property market downturn. Home prices slumped for the 12th straight month in August, and a plethora of measures—such as loosening purchasing restrictions and down payments, and lowering mortgage rates for some residences—haven’t been enough to solve the crisis.

The drag from the sector risks driving deflationary pressure, according to a private survey this week that showed companies reported the weakest growth in sales prices since the end of 2020.

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