(Yicai Global) May 5 -- Activity in China’s manufacturing and services sectors fell to the lowest levels in 24 months in April amid tighter Covid-19 restrictions.

The Caixin China general composite purchasing managers’ index, which combines both manufacturing and services activity, dropped 6.7 points to 37.2, the poorest reading since March 2020 when China was dealing with the first wave of the Covid-19 pandemic, according to data financial media group Caixin released today.

The Caixin manufacturing PMI decreased by 2.1 points to 46 from a month earlier, also the lowest in 24 months. The Caixin services PMI stood at 36.2, down 5.8 points from March.

Still, entrepreneurs remained optimistic. The manufacturing sector’s production and business activity expectations index was basically the same as a month earlier. The service sector’s business activity expectations index improved slightly.

Polled entrepreneurs said that the pandemic will eventually be brought under control but some of them worried that the epidemic control measures will last for too long.

China should optimize personnel and material flows and focus on stabilizing industrial supply chains while holding onto its zero-Covid policy, said Wang Zhe, senior economist at Caixin’s think tank.

The government should strengthen its support, targeting those industries and companies which are heavily impacted by the pandemic to stabilize market expectations, said Wang. It should also subsidize low-income groups, he added.

Caixin's numbers are consistent with the trend revealed by China’s National Bureau of Statistics on April 30. The official composite PMI declined by 6.1 points to 42.7. The manufacturing PMI was 47.4 in April, down from 49.5 in March. The service sector PMI fell 6.7 points to 40.

Caixin's sub-indexes prove what is causing the slumps. Supply and demand contracted in China's manufacturing sector as new Covid-19 outbreaks disrupted production and distribution in some regions, according to Caixin. The sub-indices of production, new orders, and new export orders all hit record lows over the past two years.

The manufacturing sector's employment rate slightly declined due to weak demand and employees' difficulties in returning to work.

Logistics companies were plagued with hindrances due to the pandemic and the Russia-Ukraine conflict, which hiked raw material costs, the report added. The ex-factory price index, which measures changes in producer prices, was at the lowest level this year in April.

The situation in the service sector was even worse. The sub-indexes of business activity, new orders, and fresh export orders fell to the lowest since March 2020. The employment index remained in the contraction zone for the fourth straight month as some firms laid off workers to cut cost amid pandemic.

Editor: Emmi Laine, Xiao Yi