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BEIJING — Chinese factory activity shrank at the fastest pace in 26 months in April amid escalating COVID-19 lockdowns, a private sector survey showed on Saturday, adding to the gloom facing the world’s second largest economy.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 46.0 in April from 48.1 the previous month, below the 47 reading analysts had expected in a Reuters poll. The 50-point index separates growth from contraction on a monthly basis.

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Businesses surveyed linked the drop to the tightening of COVID restrictions and the subsequent impact on business operations, supply chains and demand.

The rate of decline in manufacturing output was the second fastest in reading history since the survey began in early 2004, beaten only by the reduction seen at the start of the pandemic in February 2020.

A new orders sub-index fell for the second consecutive month in April and at the fastest rate in more than two years, which many companies attributed to logistical difficulties, preventing them from obtaining new orders or causing order cancellations.

In particular, greater shipping difficulties and weaker foreign demand due to COVID-19 restrictions led to a continued decline in new export orders, the survey showed. The crisis was the biggest since May 2020.

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Input cost inflation remained strong in April, although it eased slightly from the five-month high in March, due to virus restrictions and rising logistics and raw material costs at the aftermath of the Russian-Ukrainian war.

A sub-index for employment fell slightly, with some companies pointing out that virus restrictions had made it difficult for workers to return to factories.

“During the recent series of outbreaks, many corporate employees, gig workers and low-income groups have seen their incomes shrink and their lives become more difficult. This is something policymakers should not ignore,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data release.

China faces the biggest test of its ‘dynamic clearance’ approach to tackling COVID-19, as authorities sealed off megacity Shanghai throughout April while capital Beijing sees cases multiply every day. Dozens of major cities and hundreds of millions of people have been affected.

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Epidemics and strict anti-virus measures are expected to weigh heavily on China’s economic growth in the second quarter, alongside headwinds from war in Ukraine and a prolonged downturn in the domestic real estate market.

Nomura analysts expect China’s second-quarter gross domestic product growth to be 1.8% year-on-year, although a number of market watchers believe the economy may have contracted by compared to the previous quarter.

The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China. (Reporting by Ellen Zhang and Ryan Woo; Editing by Kim Coghill and William Mallard)



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