China's factory activity shrank in August for the second month in a row, official data showed Wednesday, as the sector was hit by strict zero-Covid restrictions and extreme heat.

The Purchasing Managers' Index (PMI), a key gauge of manufacturing in the world's second-biggest economy, came in at 49.4, up from July's 49.0 but still below the 50-point mark separating growth from contraction, National Bureau of Statistics (NBS) data showed.

Sporadic Covid-19 lockdowns around China have dampened consumer enthusiasm and business confidence, while searing temperatures across large parts of the country this summer prompted power rationing for factories.

The economy faced "unfavourable factors including the epidemic and high temperatures" this month, NBS senior statistician Zhao Qinghe said in a statement.

Zhao said the data showed "the recovery of manufacturing production and demand still needs to be strengthened", though he noted an uptick in activity in agricultural product processing and food producers ahead of the mid-Autumn festival on September 10.

China's manufacturing PMI has been in contraction territory for five out of the past six months, in the wake of a disruptive months-long lockdown in Shanghai and Covid-related restrictions elsewhere.

But officials show few signs of relaxing strict pandemic curbs, with the southern tech hub of Shenzhen sealing off the world's largest electronics market this week despite just dozens of daily cases in the city of more than 18 million.

Chinese leaders had originally set a full-year GDP growth target of around 5.5 percent, but with economic expansion of just 0.4 percent in the second quarter, analysts believe it is unlikely to hit that goal.

Zhao noted that while larger businesses saw an expansion in activity this month, small and medium-sized enterprises reported contractions, dragging the overall PMI down.

"China's economic weakness is increasingly becoming demand-driven," ANZ's Greater China chief economist Raymond Yeung, said.

"Consumption and investment sentiment among households and enterprises are weak, increasing the risk of a deflationary spiral."

China's non-manufacturing PMI came in at 52.6 points in August, down from 53.8 in July, NBS data showed.

Statistician Zhao said that the accommodation, food and beverage and telecommunications industries saw "sustained rapid growth" in the past month.

But ANZ's Yeung noted that weak expansion in the service sector "bodes ill for China's overall growth outlook".

He said authorities were likely to continue their tough Covid approach in the leadup to a key political meeting in October — the 20th Communist Party Congress.

China state support for economy this year exceeds 2020, premier says
Beijing (AFP) Aug 30, 2022 –

State support for China's economy this year is now greater than it was in 2020, Beijing's premier has said, surpassing help given at the height of the coronavirus pandemic as the country grapples with the impacts of its zero-Covid policy and a property sector crisis.

Economists have widely predicted that China will fail to meet its 5.5 percent GDP growth target, blaming record youth unemployment, ballooning developer debt and manufacturing disruptions from frequent Covid lockdowns.

"In response to new challenges, (we have) decisively launched a package of policies to stabilise the economy. Their strength surpasses those of 2020," Premier Li Keqiang said during a Monday State Council conference.

China's economy has also been battered by the two-month lockdown of Shanghai, a nationwide mortgage boycott, and a severe drought and heatwave which shut down manufacturing hubs and severely impacted the agricultural sector.

The grim economic outlook underscores the difficulty of balancing economic growth with the country's strict zero-Covid policy, with targeted lockdowns, travel restrictions and mass testing depleting fiscal revenues and causing disruption to everyday life.

Li hinted at this fact earlier in August, telling officials "the number of people in difficulty has seen an increase" due to the virus and recent natural disasters.

Real estate sales, a major economic driver, fell 22 percent in August, year on year, while new home prices have fallen for 11 months straight, according to data released earlier this month.

China's economic growth came in at just 0.4 percent on-year in the second quarter — its slowest rate since the pandemic began in 2020.

Beijing has taken a number of steps to help revive its economy, including a ramping-up of infrastructure investment, tax credits and loan facilities for SMEs.

China's banks last week lowered their benchmark lending rates, including on mortgage loans, for the second time this year.

Beijing also announced last week that it would allow local governments to issue more bonds.

But Ting Lu, an analyst at Nomura, wrote these measures would likely not be "game changers" due to the continued zero-Covid policy and the persistent distress affecting the property sector.