December 7, 2022

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Supportive Business Potential

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Two closely watched gauges of Chinese manufacturing sector activity diverged on Friday, complicating the outlook for the world’s second-largest economy in September.

The private Caixin China General Manufacturing purchasing managers’ index came in at 48.1 for the month, down from 49.5 the previous month and well below the 50-point threshold that separates expansion from contraction. The figure was the lowest since an equivalent reading in March.

The official state-compiled manufacturing PMI, which places greater emphasis on larger, state-owned enterprises and tends to be more optimistic, reached 50.1, however, up from 49.4 in August. Analysts had forecast readings of 49.5 and 49.6, respectively.

China’s economy has faltered in recent months as it has battled repeated flare-ups of Covid-19 with strict lockdowns that throttle economic activity. Chengdu, a megacity of 21mn in the country’s south-west, was under lockdown for much of September.

The economy has also been battered by a property sector slowdown, which has triggered a 50 per cent increase in overdue property sector loans for the country’s four biggest banks. Local government financing vehicles have responded with a spending spree seeking to bail out provinces struggling for liquidity, the Financial Times reported this month.

The Caixin survey noted that activity was damped by a decline in new business and falling prices, which dropped at their fastest rate since December 2015 as Covid curbs weakened demand.

“The negative impact of Covid controls on the economy is still pronounced,” said Wang Zhe, senior economist at Caixin Insight Group, noting that both supply and demand had declined, the job market remained weak and business confidence had ebbed.

“Policy implementation should focus on promoting employment, granting subsidies, boosting demand, and fostering market confidence.”