BEIJING (Reuters) – Chinese factory activity fared better than expected in September, stabilizing after a decline in August, a business survey found on Thursday, with a smaller drop in output offsetting a rise in Requirement.

The Caixin / Markit Purchasing Managers Index (PMI) rose to 50.0 in September from 49.2 the previous month, while analysts expected 49.5 in a Reuters poll. The 50 mark separates growth from contraction on a monthly basis.

China’s economy quickly recovered from a pandemic-induced slump last year, but has since lost momentum as its sprawling manufacturing sector hit by COVID-19 outbreaks, higher costs, production bottlenecks and, more recently, electricity rationing.

China is in the throes of an energy crisis due to a coal shortage, stricter emissions standards and strong demand from industry, triggering a widespread reduction in electricity consumption.

The production sub-index showed that production fell for a second consecutive month, but at a slower pace.

“The resurgence of the epidemic in several regions and shortages of raw material supplies have slowed production at manufacturing companies,” said Wang Zhe, senior economist at Caixin Insight Group, in comments released with the data.

China is also facing ongoing small-scale coronavirus outbreaks in southeastern Fujian Province and northeastern Heilongjiang Province.

“The companies surveyed said that the rise in costs was mainly caused by a sharp increase in the prices of energy, industrial metals and electronic raw materials,” Wang said.

New export orders slipped into the contraction faster, the data showed, reaching their lowest level since February, as foreign demand cooled. Factories continued to lay off workers and at a faster rate.

“The demand for consumer goods was weak, reflecting the lack of purchasing power of consumers,” Wang said, adding that the demand for intermediate goods was higher.

A sub-index of new orders returned to expansion. Input prices have increased at the fastest pace since May.

Rising commodity prices, especially metals and semiconductors, also weighed on earnings. Profits of industrial companies slowed for a sixth month in August.

(Reporting by Gabriel Crossley; Editing by Ryan Woo and Ana Nicolaci da Costa)