The “inevitable” economic cost of Chinese cities being forced to impose restrictions amid a surge in coronavirus cases has already started to appear, analysts say, as activity in China’s factory and services sectors slowed further in November. The official manufacturing purchasing managers’ index (PMI) fell to 48 this month, down from 49.2 in October , the National Bureau of Statistics (NBS) confirmed on Wednesday. This was the lowest reading since April after remaining below the 50-mark that separates growth from contraction on a monthly basis for a second consecutive month, and it comes at as coronavirus disruptions and lockdowns have returned across China, with daily infections rising to around 40,000. The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, also fell to its lowest point since April after slowing to 46.7 in November from 48.7 in October. The reopening process has started, which will likely help the economy rebound in the second half of 2023 Zhang Zhiwei “The China NBS purchasing managers’ indices survey suggested manufacturing activity worsened in November on tightened Covid curbs and weak demand,” said analysts at Goldman Sachs. The decline in both gauges, which provide an early indication each month of economic activities, dragged the official composite PMI, which includes both manufacturing and services activity, down to 47.1 from 49 in October. “Economic activities will likely weaken further in December and the first quarter. The reopening process has started, which will likely help the economy rebound in the second half of 2023,” Zhang Zhiwei, chief economist at Pinpoint Asset Management, said after China eased up a little on its zero-Covid policy earlier this month, including reducing quarantine periods for overseas arrivals. “But at this early stage of reopening, more cities face a rising number of Covid patients. These cities have to impose restrictions to ‘flatten the curve’. The economic cost is inevitable.” Within the non-manufacturing gauge, the construction subindex fell to 55.4 from 58.2 in October, while the service subindex slowed to 45.1 from 47. This showed “a sharp deceleration in both the construction and services sectors”, according to the analysts from Goldman Sachs. “The official PMIs add further evidence of another large blow to services activity as virus disruptions intensified this month. The hit to industry looks to have been more modest. But downside risks continue to grow as the virus situation continues to worsen and will weigh heavily on the economy into 2023,” said Sheana Yue, China economist at Capital Economics. Within the manufacturing gauge, the output subindex slowed to 47.8 in November from 49.6 in October, while growth in the new order subindex fell to 46.4 from 48.1. The new export order subindex also eased to 46.7 from 47.6, with the NBS commenting that “the deterioration of manufacturing activity was mainly linked to protracted Covid restrictions and weak demand in both domestic and external market”, the analysts from Goldman Sachs added. We’d caution against reading too much into the manufacturing measure Sheana Yue “[The] surveys suggest that intensified virus disruptions delivered another blow to the economy this month. However, we’d caution against reading too much into the manufacturing measure. Apart from the initial hit in 2020, the manufacturing PMI has overstated the extent of industrial disruption from previous virus outbreaks,” Yue added. “That’s because workers in manufacturing have been locked down inside factories where they can keep working. That appears to have been the case again. As such, we’ll reserve judgment on the extent of actual disruption until we see more direct measures of industrial activity.” China’s exports declined by 0.3 per cent in October compared with a year earlier, down from 5.7 per cent growth in September, with the fall in the export orders index “consistent with declines in exports over the coming months”, Yue said. ‘Turning point’ for China trade as exports suffer first drop in over 2 years Senior NBS statistician Zhao Qinghe attributed the fall in the November PMIs to “multiple factors”, including the rising number of coronavirus cases and a more severe international environment. “China’s economic prosperity level had a slight decline,” Zhao said. He cited significant pressure faced by the manufacturing sector, while 15 of the 21 service sectors surveyed are still contracting. However, Zhao said that sectors including food processing, pharmaceuticals, electrical engineering, IT and construction remain in expansionary territory, and that their development prospects remain optimistic. Additional reporting by Frank Tang