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Chinese manufacturing activity contracted unexpectedly in July, official surveys found on Sunday, as tight Covid-19 restrictions and weak demand in Beijing undermined hopes for a stronger economic recovery, underscoring how far the country is from any semblance of postpandemic normality.
The official manufacturing purchasing managers’ index fell from 50.2 in June to 49.0 in July, China’s National Bureau of Statistics said on Sunday. The result pointed to a surprising contraction in economic activity, which fell below the 50-line separating expansion and contraction, and remained below the average forecast of 50.3 among economists polled by The Wall Street Journal of 50.3.
While local governments across China have become more adept at managing Covid-19 outbreaks quickly and with fewer disruptions than in previous months,
PMI
reading is likely to underscore concerns among economists and investors about the road ahead for the world’s second-largest economy as Beijing reaffirms its commitment to a strict zero-covid policy.
On Thursday, the Politburo, the highest policy-making body of the ruling Communist Party in China, sharpened its language on the importance of containing Covid, explicitly citing political considerations in balancing pandemic controls and economic growth. It also offered little sign that it would yield to its regulatory campaign to curb the real estate sector, a historically reliable growth engine that accounts for about a third of the total economy by some measures.
In mid-July, China reported that gross domestic product grew a meager 0.4% year-on-year in the second quarter of the year compared to a year earlier, the weakest growth rate in more than two years, highlighting the depth of the damage which was caused by the strict confinements. The poor result has prompted top leaders to effectively recognize that the government’s official GDP target of around 5.5% growth in 2022 is now out of reach, barring major stimulus that Beijing has all but ruled out.
Speaking on Sunday, Chinese officials nodded at the challenges ahead for the economy. “The foundations of economic recovery have yet to be strengthened,” he said
Zhao Qinghe,
a senior official at the statistical office, who cites insufficient market demand and weakness in energy-intensive industries as particular sources of concern.
Only 10 of the 21 industries surveyed by the statistical office showed growth in July, compared to 13 in June. The June PMI reading of 50.2 was the expansive reading after three consecutive months in which the strict lockdown of Shanghai, China’s most prosperous city and a major manufacturing center, had kept the gauge below 50.
China’s export sector, a key growth engine for the country’s first post-pandemic recovery, continued to disappoint and acted as a headwind for the overall manufacturing sector. In July, the PMI sub-index tracking export orders remained in contraction territory for the 15th consecutive month.
More downside risks remain after the Federal Reserve raised its benchmark lending rate by a further 0.75 percentage points in late July, the second such move this summer, in a bid to fight inflation. Tightening tariffs in the US and other major economies threaten to stifle overseas demand for goods made in China, economists say.
The Chinese export sector, a key growth engine for the country’s first post-pandemic recovery, continued to disappoint.
Photo:
Cfoto/Zuma Press
Separately on Sunday, China’s official PMI for non-manufacturing in July fell to 53.8 in July, from 54.7 in June, the statistics agency said. The sub-index measuring services sector activity fell to 52.8 in July from 54.3 in June, while the sub-index measuring construction activity rose to 59.2 from 56.6 in June.
While both sub-indexes remain in expansive territory, suggesting that the modest recovery in the non-manufacturing sector remains largely on track, strict social constraints – for example, requiring the results of PCR tests to board public transport in many cities transportation or entering restaurants, as well as quarantines for those traveling from one city to another, continue to cast a shadow on consumer demand, especially for restaurants, hotels and entertainment venues.
The weaker PMI readings came amid continued sporadic Covid outbreaks in July, although lockdowns were largely confined to less-developed regions of the country, including the landlocked Gansu province in China’s arid northwest and poorer regions. , mountainous Guangxi in the southwest.
Meanwhile, the weakness in the real estate market that started late last year has gone from bad to worse in recent weeks as homebuyers across the country cut mortgage payments on unfinished apartments, which in turn has weakened developers and regional banks and deterred other would-be homebuyers. and dented market confidence in general.
Unemployment among workers aged 16-24 has also surged, reaching a record 19.3% in June from 18.4% in May. The manufacturing sub-index that tracks employment fell to 48.6 from 48.7 in June, the statistics office said Sunday.
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