Markit/Caixin’s survey revealed Wednesday that activity in China’s manufacturing sector contracted slightly in August.

According to the report, the Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 49.2 in August, down from 50.3 in July, signaling a slight deterioration in business conditions in the manufacturing sector. This marked the first contraction in factory activity since April 2020.

The 50 mark divides contraction and expansion.

Economists’ had predicted the reading to slip to 50.2.

The deterioration was driven by a renewed decline in output and a further decrease in new work amid the resurgence of the coronavirus in China and abroad and the imposition of subsequent restrictions to contain its spreading. Manufacturers’ output shrank for the first time since February 2020, while total new work fell for the second month in a row and the rate of the decline was the steepest seen since April 2020. In addition, employment recorded a fractional drop in August, after payrolls were broadly unchanged in July, while the backlogs of work increased at the fastest rate since May. On the price front, the rate of cost inflation rose for the first time in three months and was sharp overall. At the same time, factory gate prices increased only modestly, despite the rate of increase picking up since July.

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group noted: The reappearance of Covid-19 clusters in several regions beginning in late July has dealt a blow to manufacturing activity. Both supply and demand in the manufacturing sector shrank as the Covid-19 outbreaks disrupted production."