Economists are concerned the lockdown could affect growth in the world's second largest economy.
Businesses including Volkswagen have scaled back their operations in Shanghai, which is being locked down due to a surge in Covid-19 infections.
The National Bureau of Statistics said its purchasing managers' index slipped from 50.2 in February to 49.5 in March.PMI data is a summary of market conditions gathered through surveying senior executives in key industries about their expectations for a number of factors including new orders, production and employment.
Earlier this month, a VW spokesperson said "What we have lost so far in production can be recovered, [for example] via additional shifts, once the situation eases." However, lockdowns in Shanghai and other Chinese cities may ultimately have "little impact" on production, said UBS' chief China economist Tao Wang.