By Gina Lee
Investing.com – China’s manufacturing and services sectors simultaneously contracted in March 2022 for the first time in two years and highlighted the urgency for more policy intervention to stabilize the economy.
National Bureau of Statistics (NBS) data released earlier in the day showed that the manufacturing purchasing managers' index (PMI) was at 49.5. Forecasts prepared by Investing.com predicted a 49.9 figure, while February’s figure was 50.2. The non-manufacturing PMI was at 48.4, compared to the previous month’s 51.6 figure.
The last time both PMIs were both below the 50- mark separating contraction from growth was in February 2020, as COVID began to spread after being detected in the city of Wuhan. More recent outbreaks in cities such as Shanghai and Shenzhen are now pushing the indexes into contraction.
"Recently, clusters of epidemic outbreaks have occurred in many places in China and coupled with a significant increase in global geopolitical instability, production and operation of Chinese enterprises have been affected," NBS senior statistician Zhao Qinghe told Reuters.
Other investors agreed, with Pinpoint Asset Management chief economist Zhiwei Zhang telling Reuters, "PMI weakened as the omicron outbreaks in many Chinese cities led to lockdowns and disruption of industrial production. As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April."
Tesla (NASDAQ:TSLA) Inc. was one company that recently shut down its plant in Shanghai to comply with COVID-19 measures.
"Due to the epidemic outbreaks, some companies in some areas temporarily reduced production or stopped production, which also affected the normal production and operation of both upstream and downstream companies," said NBS’ Zhao.
Some companies also saw the cancellation or reduction of overseas orders due to geopolitical uncertainties, Zhao added.
Weaker production and demand also impacted factory jobs.
"The PMIs probably understated the hit to activity last month. The services index remained above the low of 45.2 that it hit last August during the Delta wave. That's probably because the survey was conducted prior to the worst disruptions," Capital Economics senior China economist Julian Evans-Pritchard told Reuters.
To cushion the impact of new COVID-19 lockdowns, authorities have unveiled steps to support business, including rent exemptions for some small services-sector firms.
The People's Bank of China is also expected to cut rates and lower reserve requirements for banks as downward economic pressures build, according to analysts.