China’s economy under pressure as factory activity slows
China's businesses and the broader economy came under increasing pressure in August as factory activity expanded at a slower pace while the services sector slumped into contraction, raising the likelihood of more near-term policy support to boost growth.
The world's second-largest economy staged an impressive recovery from the coronavirus-battered slowdown, but growth has stymied the recent domestic Covid-19 outbreak, slowing exports, tighter measures to ease hot asset prices and carbon dioxide emissions. The campaign to reduce has shown signs of losing steam. emissions
The official Manufacturing Purchasing Managers' Index (PMI) stood at 50.1 in August, up from 50.4 in July, data from the National Bureau of Statistics (NBS) showed on Tuesday. The 50-point mark separates growth from contraction. Analysts polled by Reuters had expected it to slip to 50.2.
"The latest surveys show that China's economy contracted (in August) as the virus disruption took a heavy toll on services activity. In a note, Julian Evans-Pritchard, senior China economist at Capital Economics, said the industry continued to swell due to supply chain bottlenecks and slowing demand.
While most of the weakness should reverse with the easing of Covid-19 restrictions, tight credit conditions and weak foreign demand will continue to weigh on China's economy, he said.
In a worrying sign for China's slowing consumption recovery, a gauge of activity for the services sector in August slipped into a sharp contraction for the first time since the height of the pandemic in February last year.
The official non-manufacturing PMI in August was 47.5, well below July's 53.3, data from the National Bureau of Statistics (NBS) showed. "The epidemic in many provinces and locations was a major blow to the services industry, which is still recovering," said NBS's Zhao Qinghe.
Zhao said the catering, transportation, housing and entertainment industries have been the most affected.
Construction activity accelerated at the fastest pace since March. China's latest coronavirus outbreak appears to have been largely brought under control, with zero locally transmitted cases reported on August 30, the third day in a row.
But it has prompted officials across the country to implement measures including travel restrictions and port closures of varying degrees, along with mass testing for millions of people.
The manufacturing PMI showed demand fell sharply, with a gauge for new order contracts and new export orders falling to 46.7, the lowest in a year. The factories also laid off workers like in July.
The Meishan terminal at China's Ningbo port resumed operations in late August after being closed for two weeks due to a Covid-19 case. The closures have blocked ports in the country's coastal regions and further strained global supply chains amid a resurgence of consumer spending and a shortage of container ships.
Higher raw material prices, especially of metals and semiconductors, have also put pressure on profits. In July, earnings of industrial firms in China slowed for the fifth straight month.
The People's Bank of China (PBOC) cut the amount of cash banks in mid-July, releasing about 1 trillion yuan ($6.47 trillion) in long-term liquidity to support the economy.
Many analysts expect another cut at the end of the year. The official August composite PMI, which includes both manufacturing and services activity, fell to 48.9 from 52.4 in July.
Source: www.thedailystar.net
