New alarm for the Chinese economy: the activity of the manufacturing industry collapses sharply
The bad news on the health of China’s economy follows one another. Whereas China saw growth slump to near standstill in the second quarter, the activity of the manufacturing industry slows down sharply. After recovering in June after restrictions were lifted, it contracted unexpectedly in July amid renewed health fears, a pessimistic economic outlook and a slowdown in demand. That’s according to the release of the National Bureau of Statistics’ manufacturing PMI index this Sunday. The latter actually fell to 49 in July from 50.2 in the previous month. It is thus below the threshold of 50 that separates growth from a decline in activity. The surprise is significant. Analysts polled by Reuters had expected an improvement to 50.4. This is the index’s weakest performance in the last three months. The production, new orders and employment sub-indices are all below 50.
“The level of economic prosperity in China has declined, the foundations of recovery have yet to be consolidated,” Zhao Qinghe, chief statistician with the National Bureau of Statistics, said in a statement.
In his opinion, the reasons for this decline are multiple: “traditional off-season of production, insufficient release of market demand and the decline of industries with high energy consumption”. One of the main reasons for this relapse is the continued decline in activity in the oil, coal and foundry sectors.
The manufacturing sector continues to face high commodity prices, which are hurting profit margins, while export prospects are weak on global recession fears. Zhao Qinghe added that the sharp volatility in commodity prices has prompted some companies to take a wait-and-see approach, which “weakens purchase intentions.”
decline in demand
The proportion of companies saying market demand is insufficient has also risen for four straight months, the statistician said, noting that this is the “key difficulty” for manufacturers. That demand weakness is hampering the recovery, notes Bruce Pang, chief economist at Jones Lang Lasalle Inc, in a research note: “Third quarter growth may face more challenges than expected as the recovery is slow and fragile. . »
Despite the partial lifting of Covid-related restrictions in major cities like Shanghai and Beijing, the country’s lockdowns have worried businesses and consumers.
Especially since the authorities do not seem to want to give up the zero-Covid policy. At a Politburo meeting this week, officials hinted that fighting the pandemic would remain a priority, rather than achieving economic and social goals.
China’s leaders initially set a GDP growth target of around 5.5% for the full year, but with economic growth of just 0.4% in the second quarter, analysts say that target is unlikely to be met.
China’s non-manufacturing PMI also fell in July to 53.8 points from 54.7 in June, data from the National Bureau of Statistics showed on Sunday. This follows a policy aimed at boosting consumption and restarting construction, according to the same source.
IN JAPAN, INDUSTRIAL ACTIVITY RECOVERED IN JUNE
Japanese industrial production rebounded sharply in June, especially under the influence of the lifting of the containment regime in Shanghai, which caused Japan’s manufacturing activity to fall its worst in two years in May, according to figures released on Friday. According to a first estimate by the Ministry of Economy, Trade and Industry (Meti), this indicator recovered by 8.9% over a month in June.
It fell 7.5% in May as a result of supply chain disruptions related to health restrictions in China. The consensus economists at the Bloomberg agency did expect a recovery in June, but much less strongly (+4.2%). According to Meti, Japanese industrial goods shipments also recovered in June (+4.6% over a month) and inventories (+2.1%). The auto industry, electric machinery, computers and electronics were the sectors that contributed the most to the recovery in Japan’s industrial production in June, according to the ministry. Japanese manufacturers surveyed by Meti each month expect further increases in production in July-August.
(with AFP and Reuters)