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China Dec manufacturing contracts sharply as COVID infections soar

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BEIJING — China’s factory activity shrank for the third straight month in December and at the sharpest pace in nearly three years as COVID infections swept through production lines after Beijing’s abrupt easing of anti-virus measures.

The official purchasing managers’ index (PMI) stood at 47.0 against a 48.0 reading in November, the National Bureau of Statistics (NBS) said on Saturday. Economists in a Reuters poll had expected the PMI to come in at 48.0. The 50-point mark separates contraction from growth on a monthly basis.

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The drop was the biggest since the early days of the pandemic in February 2020.

The data offered the first official snapshot of the manufacturing sector after China removed the world’s strictest COVID restrictions in early December. Analysts said surging infections could cause temporary labor shortages and increased supply chain disruptions, weighing further on economic activity in coming months.

The dismantling of the anti-virus rules has been welcomed by businesses although it has disrupted operations. Reuters reported on Wednesday that Tesla plans to run a reduced production schedule at its Shanghai plant in January, extending the reduced output it began this month into next year.

Weakening external demand on the back of growing global recession fears amid rising interest rates, inflation and the war in Ukraine may further slow China’s exports, hurting its massive manufacturing sector and hampering the economic recovery.

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Some companies are trying to minimize

disruption

s by splitting their remaining healthy staff into two teams, with only one team working a particular shift, or maintaining a closed-loop system in their factories and surrounding compounds.

After three years of zero-tolerance measures, from shuttered borders to frequent lockdowns, the world’s second-largest economy announced that from Jan. 8, the country will

stop

requiring inbound travelers to go into quarantine.

This move has raised hopes that the country’s multi-billion dollar

travel business

will soon flourish again, but countries longing for the return of Chinese tourists will likely face more of a wait.

The non-manufacturing PMI, which looks at services sector activity, fell to 41.6 from 46.7 in November, the NBS data showed, also marking the lowest reading since February 2020.

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The official composite PMI, which combines manufacturing and services, declined to 42.6 from 47.1.

The country’s banking and insurance regulator pledged this week to step up financial support to small and private businesses in the

catering and tourism sectors

that were hit hard by the COVID-19 epidemic, stressing a consumption recovery will be a priority.

But analysts expect the economy to struggle over the winter months as much of the population become infected and are unable to work while recovering.

The official manufacturing PMI largely focuses on big and state-owned firms. The private sector Caixin manufacturing PMI, which centers more on small firms and coastal regions, will be published on Jan. 3. The Reuters poll expected it to be 48.8. (Reporting by Ryan Woo, Joe Cash and Ellen Zhang; Editing by Sam Holmes and Kim Coghill)

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