Chinese manufacturing activity shrank for a fifth straight month in December, a private survey showed on Tuesday, as the country grappled with an unprecedented spike in COVID-19 cases after it relaxed some restrictions intended to prevent the spread of the virus. The Caixin Manufacturing Purchasing Managers Index (PMI) read 49.0 in December, higher than forecasts for 48.8 but weaker than last month’s reading of 49.4. A reading below 50 indicates contraction, with December marking the fifth straight month that the manufacturing PMI has spent in contraction territory. The data was largely in line with government data released last week, which also showed that the country’s manufacturing sector shrank in December. China’s manufacturing sector is a bellwether for economic conditions in the country, given that it is closely tied to the Asian giant’s massive exports. Output slowed substantially in 2022 amid continued disruptions from COVID-related headwinds, as well as worsening overseas demand for Chinese goods. “Both manufacturing supply and demand continued to shrink last month. Fallout from the pandemic was a drag on production and sales, with the subindexes for output and total new orders staying below 50 for the fourth and fifth straight months, respectively,” Wang Zhe, Senior Economist at Caixin Insight Group wrote in a note.

While the Country Has Now Begun Relaxing its Strict Anti-COVID Measures.

it is now facing a massive spike in infections. Analysts expect this trend to delay a broader reopening in the country, as it faces an increased infection and death count from the virus. Still, markets are holding out for an eventual reopening in the country this year. Traders piled heavily into Chinese stocks and debt towards the end of 2022, seeing the space as a bargain buy after a heavy selldown earlier in the year. This was also reflected in increased business optimism among Chinese manufacturers, according to the Caixin data. Firms are positioning for an eventual economic recovery after the country began easing COVID-19 restrictions in December. President Xi Jinping also recently said that China’s economy grew 4.4% in 2022 – a figure that is much higher than markets were anticipating. But he also noted that the country faces increased headwinds from the COVID-19 pandemic in the coming months.