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Since the beginning of the Covid pandemic, China has used harsh lockdowns of entire cities to tamp down outbreaks. Now it looks like the negative effects of that hard lockdown strategy may be coming home to roost. Stella Yifan Xie reports for The Wall Street Journal, writing:

Chinese economic activity remained feeble in September, with the services sector slipping into contraction, offering new evidence of the damage that Beijing’s Covid-prevention measures and a deepening real estate slide are inflicting on the country’s economy.

Activity in the services sector, which includes the retail, catering and transport industries, was hammered as authorities across China tightened Covid-19 restrictions ahead of a key political gathering in October.

A subindex measuring the services sector fell to 48.9 in September from 51.9 the previous month, China’s National Bureau of Statistics reported Friday. The poor performance in the services sector dragged the broader official nonmanufacturing purchasing managers index down to 50.6 in September, from 52.6. A reading below 50 indicates contraction.

Weakening momentum in the services sector underscores the limits to Beijing’s campaign to spur domestic demand as youth unemployment hovers near historic levels, income growth stalls and the real-estate market remains depressed.

Home sales in China continued to slide on a yearly basis in September, despite efforts by central and local governments to lower purchase barriers for potential home buyers and help struggling developers complete construction of their presold building projects.

Sales at the country’s 100 largest property developers fell 25.4% from September 2021 to the equivalent of about $80 billion, according to data released Friday by China Real Estate Information Corp., an industry data provider. That marked a 15th consecutive month of year-over-year declines. Compared with August, sales in September—traditionally a busy month for home sales in China—rose 10%.

Moreover, economists warn that China’s strict Covid-19 curbs, which many expect to remain in place through the rest of the year, are likely to keep a lid on any potential rebound.

As of Friday, cities under some form of Covid restrictions accounted for 25% of gross domestic product, down from 28% a week earlier, according to Goldman Sachs. The investment bank, along with many of its peers, doesn’t expect China to begin easing Covid restrictions until toward the middle of 2023.

Spending during a coming weeklong national holiday that begins on Saturday, typically one of the busiest travel seasons of the year, is expected to pale in comparison with the year-earlier level, analysts say, pointing to guidance from public health officials across China urging the public to avoid moving around and reduce infection risks.

“We think the economy will continue to struggle over the coming months,” Zichun Huang, an economist at Capital Economics, told clients in a in note Friday.

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