China's Manufacturing Grinds Down As Harsh COVID Lockdowns Take Toll On Economy

China’s economy has slowed significantly in the last year as COVID-19 outbreaks and lockdowns continue to extract a toll. Disruptions in the world’s second-largest economy promise ripple effects that can be felt around the world.

A survey released Tuesday from the data platform China Beige Book (CBB) found that manufacturing declined by double digits in the last year in terms of revenue, profit and hiring in the first quarter of 2022. This followed initial government data that showed exports grew by 16.3% in the first two months, but this was smaller than the 29.3% recorded a year earlier.

CBB made its readings based on responses from 4,300 businesses in China with the most recent data ending on March 16. The first quarter of the year ends on March 31.

Shehzad H. Qazi, managing director at the China Beige Book, attributed some of the weaknesses to a series of COVID-19 outbreaks and Beijing's strict responses to them. Taken together, Chinese consumers are kept home while manufacturing is curtailed.

“The core problem for manufacturers right now is soft domestic demand and the threat of additional COVID outbreaks, which could further derail growth,” Qazi told CNBC.

China has been wracked by outbreaks of COVID-19 across several of its biggest manufacturing sectors. After an outbreak of Omicron in March, both Shenzhen and Shanghai were forced to lock down in accordance with Beijing’s strict “zero-COVID” policy. Under this strategy, authorities work towards a complete elimination of the virus through strict public health measures like lockdowns, mass testing and limiting the entry of foreigners into China.

This policy has come under fire from outside critics, who say that they stunt manufacturing and deliveries. These in turn add to the supply chain bottlenecks that have pushed up inflation worldwide.

President Xi Jinping has made clear that he remains behind the “zero-COVID” strategy. In contrast, Western countries, such as the United States, have pursued more flexible measures.

Meanwhile, case numbers have been increasing in Europe because of what the World Health Organization says was an overeagerness to abandon public health restrictions.