(Yicai Global) Sept. 30 -- China’s manufacturing activity dropped to the lowest level in five months this month, back to where it was in May and remaining within contraction territory, as continued outbreaks of Covid-19 continue to put a damper on production and demand, according to a widely watched private survey.

The Caixin purchasing managers' index for the manufacturing sector came in at 48.1 in September, data released by financial media group Caixin showed today. This is 1.4 percentage point lower than in August. A reading below the benchmark of 50 indicates contraction and one above reflects expansion.

This is not in line with the official manufacturing PMI released by the National Bureau of Statistics today, which bounced back into positive territory at 50.1, a gain of 0.7 percentage point from August.

High unemployment, sluggish demand and unstable expectations are the biggest factors affecting the economy, said Wang Zhe, senior economist at Beijing-based Caixin. Policies must focus on creating jobs, issuing subsidies, boosting demand and lifting confidence.

The lasting impact of the coronavirus flare-ups suppressed supply and demand. The production subindex dropped below 50 for the first time since June while the new orders subindex sank to a five-month low, staying in the contraction zone for two straight months. Falling overseas demand for China-made products drove the new export orders subindex down to the lowest level since June.

Weak factory activity had a major adverse impact on employment. Companies slashed their headcount and some staff members could not get back to work as scheduled due to epidemic prevention measures. As a result, the employment subindex tumbled to its lowest since May 2020.

The raw material purchase price subindex slumped to its lowest level since February 2016 on the falling price of steel and other raw materials.

The manufacturing sector is still predicting growth for the coming year, but optimism has dropped to its lowest level since December 2019 and is below the long-term average

Many firms are worried that the reoccurring Covid-19 outbreaks and epidemic prevention measures will continue to affect their business and market demand in the next months. But others expect the market to become stable and demand to pick up. These companies said they will invest more in equipment and products.

Editor: Kim Taylor