China's factory activity contracted for a fifth straight month in August, official data showed on Thursday, as pressure mounts on Beijing to offer more policy support to bolster its sluggish economy.
The reading is the latest to indicate the nation's post-Covid recovery is running off the tracks owing to a decline in overseas demand as well as a drop-off in consumption at home.
The official manufacturing purchasing managers' index (PMI) -- a key measure of factory output -- came in at 49.7 in August, below the 50-point mark that separates expansion and contraction, according to the National Bureau of Statistics (NBS).
Still, the reading was slightly higher than the July reading and also beat forecasts.
The non-manufacturing PMI, which includes activity in the construction and services sectors, fell to 51.0, from 51.5 in July, according to NBS data.
Lukewarm demand for exports, a slump in the property market and high rates of youth unemployment have raised concerns about the economic slowdown in China.
"The survey results show that insufficient market demand remains a major problem facing enterprises today," NBS analyst Zhao Qinghe said in a statement.
"The foundations for the recovery and development of the manufacturing industry needs to be consolidated."
A string of weak indicators this year have ramped up pressure on authorities to introduce measures to kickstart growth in the world's number two economy as the initial burst of activity in the first few months after the lifting of Covid rules fades.
In response leaders have announced a range of pledges aimed at various sectors, particularly the troubled property industry, but traders have been disappointed by a lack of detail or follow-through.
Many are now urging officials to unveil a "bazooka" of big spending similar to the $550 billion stimulus seen in 2008 during the global financial crisis.
"Overall economic momentum remains weak and more policy support is needed to avoid a renewed slowdown later this year," analysts at Capital Economics said in a research note.
China's economy grew 6.3 percent in the second quarter, much weaker than the 7.1 percent predicted in an AFP survey of analysts, while leaders have set a target of around five percent for this year, which would be one of its worst in decades, outside of the Covid period.
The International Monetary Fund forecasts 5.2-percent growth in China's GDP this year.
Asian markets mixed ahead of key US inflation report
Hong Kong (AFP) Aug 31, 2023 -
Markets were mixed Thursday as investors struggled to maintain momentum from Wall Street's rally, even after fresh data reinforced optimism the Federal Reserve will be able to hold off any more interest rate hikes this year.
New York traders cheered news that fewer jobs were created in the US private sector and second-quarter growth was less than initially thought, suggesting the economy was softening after more than a year of monetary tightening.
The readings came a day after figures on job openings and consumer confidence that were seen as giving the Fed room to step back from pushing borrowing costs higher.
Investors now put the chances of another lift this year at less than 50 percent.
The prospect of a less hawkish approach from the US central bank has provided a much-needed boost to equities this week, having endured a painful August.
Focus is now on Thursday's release of the US central bank's preferred gauge of inflation, the per
sonal consumption expenditures (PCE) price index, which will be followed by readings on factory activity and non-farm payrolls for August.
"Investors are reacting with a 'bad news is good news' approach, betting that a slowing economy will lead to a less aggressive Federal Reserve," Mark Hackett, at Nationwide Funds Group, said.
However, there is now a worry that the data will continue to come in below forecast and the economy could slip into recession.
"This has calmed investors, but adds an element of risk if the pendulum continues to swing, as an earnings recovery is critical for a continued strong market," Hackett added.
In early trade, Tokyo, Hong Kong, Sydney, Singapore and Jakarta rose, but Shanghai, Seoul, Wellington, Taipei and Manila fell.
China on Thursday revealed that factory activity shrank again this month while services weakened, which will likely pile further pressure on authorities to press ahead with measures to kickstart the sputtering economy.
Officials have announced a series of pledges to help various sectors -- particularly the property industry -- and there is an expectation that more is on the way.
In the latest measure, local reports Thursday said the central bank is drawing up policies that will make it easier for private firms, including developers, to access funding.
However, analysts say the only thing that will appease investors is a wide-ranging "bazooka" of big spending.
"There remains an undercurrent of optimism regarding additional policy measures anticipated for China," said SPI Asset Management's Stephen Innes.
"Nevertheless, tenacious economic apprehensions concerning China persist. The current perspective on China's growth trajectory has become increasingly fixated on the pivotal policy choices that Chinese authorities must navigate."
The need to provide support to the embattled real estate sector were highlighted Wednesday when industry giant Country Garden reported losses of about $6.7 billion for the first half of the year and warned of possible default.
The company's cash flow problems have ignited fears that it could collapse and spread turbulence through China's economy and financial system.
It is due to hold a vote later Thursday by bondholders on extending repayment terms.
Artificial Intelligence Analysis
Defense Industry Analyst: 8Stock Market Analyst: 7General Industry Analyst: 6Analyst Summary
:
The official manufacturing purchasing managers’ index (PMI) in China showed a contraction of factory activity for the fifth consecutive month in August, according to data from the National Bureau of Statistics. This is indicative of a decrease in overseas demand and a drop in domestic consumption. Despite this contraction, the reading was slightly higher than the July reading and the non-manufacturing PMI also fell, indicating a greater reliance on further policy support from Beijing to boost the nations economy. High youth unemployment, weak demand for exports, and a slump in the property market have all contributed to this economic slowdown. Over the past 25 years, the Chinese economy has grown significantly and is now the world’s second largest. This contraction in August, however, is indicative of a slowdown in the growth trajectory.
Investigative
Question:
- 1. What are the measures that Beijing has announced to address the economic slowdown?
- 2. How has the Chinese economy been impacted by the Covid-19 pandemic?
- 3.
What measures can be taken to incentivize youth employment?4. What is the impact of the slump in the property market on the overall Chinese economy?
5. Are there any long-term implications to the contraction in factory activity?
This AI report is generated by a sophisticated prompt to a ChatGPT API. Our editors clean text for presentation, but preserve AI thought for our collective observation. Please comment and ask questions about AI use by Spacedaily. We appreciate your support and contribution to better trade news.
