Factory activity in China ended three months of decline this month as strict lockdown restrictions in Shanghai were lifted by authorities, bolstering production and new order growth.

The official manufacturing purchasing managers’ index (PMI) increased to 50.2 this month from 49.6 in May, according to the National Bureau of Statistics (NBS) on Thursday.

The results of a survey by Reuters news agency showed the PMI at 50.5, above the 50-mark separating expansion from contraction.

Despite activity in China gaining pace following strict lockdowns in April and May, headwinds remain. These include weak consumer spending, fears of further Covid waves and a muted property market.

At the beginning of June, Shanghai ended its lockdown restrictions, permitting small factories to return to operations. However, social distancing rules remained in place throughout this month.

Furthermore, a production sub-index showed 52.8, the highest since March last year, whilst new orders returned to growth for the first time in four months. That said, growth stayed weak.

“Even though the manufacturing sector continued to recover this month, 49.3% of the companies reported orders were insufficient,” according to NBC senior statistician, Zhu Hong. “Soft market demand is still the main problem facing the manufacturing industry.”

Following two years of record exports, manufacturers in China are dealing with elevated raw material costs, lower profit margins, overseas competition and decelerating global demand.

This month’s official non-manufacturing PMI rose to 54.7 from 47.8 in May. There was a strong rebound within the services industry to hit a 13-month high, and demand improved within sectors severely impacted by Covid.

A package of economic support measures was recently unveiled by the country’s State Council, in a bid to curb unemployment and stabilise growth. However, according to analysts, the official GDP target of 5.5% will be tough to reach without scrapping the zero-Covid strategy.