On Friday, two closely watched gauges of Chinese manufacturing activity diverged, complicating the outlook for the world’s second-largest economy in September.

The Caixin China General Manufacturing Private Purchasing Managers’ Index came in at 48.1 for the month, down from 49.5 the previous month and well below the 50-point threshold that separates expansion from contraction. The figure was the lowest since an equivalent reading in March.

The official state-compiled manufacturing PMI, which places more emphasis on large public companies and tends to be more bullish, however, came in at 50.1, down from 49.4 in August. Analysts had expected readings of 49.5 and 49.6, respectively.

China’s economy has faltered in recent months as it battled repeated outbreaks of Covid-19 with strict lockdowns strangling economic activity. Chengdu, a 21-minute megacity in the country’s southwest, was locked down for much of September.

The economy was also hit by a slowdown in the real estate sector, which triggered a 50% increase in delinquent home loans for the country’s four largest banks. Local government financing vehicles responded with a spending spree aimed at bailing out struggling provinces for liquidity, the Financial Times reported this month.

The Caixin survey noted that activity was dampened by a drop in new business and falling prices, which fell at their fastest pace since December 2015 as Covid dampens weakened demand.

“The negative impact of Covid controls on the economy is still pronounced,” said Wang Zhe, senior economist at Caixin Insight Group, noting that supply and demand had declined, the labor market remained weak and that business confidence had declined.

“Policy implementation should focus on promoting employment, providing subsidies, stimulating demand and promoting market confidence.”

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