End of the month. Same old story. China’s manufacturers continue to feel the pain as the world’s second-largest economy spirals into a black hole.
At the weekend, the National Bureau of Statistics reported that factory activity plunged to a six-month low in August. Confidence evaporated as the official purchasing managers’ index or PMI fell to 49.1 from July’s figure of 49.4.
The numbers were below the 50-point mark, which separates growth from contraction, highlighting the “challenges” engulfing the world’s second-largest economy. A slight rise in a private survey failed to ease the gloom.
“Factories [experienced a] fourth month of contraction … [and] investment banks [have predicted] China will miss its annual target of 5% GDP growth,” Dexter Roberts, the author of The Myth of Chinese Capitalism, said.
“[Even] cash-strapped [local governments have] touted plans to ‘smash iron pots, sell the steel,’ [a metaphor for liquidating assets at all costs,] to pay down swelling debt,” he wrote in his Trade War newsletter at the weekend.
Behind the numbers:
- Local government debt is hovering around US$11 trillion after the real estate sector went from boom to bust.
- Only a green tech export rush has propped up an economy reeling from a property meltdown, stagnating wages, and anemic consumer spending.
- But even that has been hit after the United States and the European Union imposed eye-watering tariffs on heavily subsidized Chinese electric vehicles.
China’s economy is facing significant challenges.
Author Tao Wang
Big picture: “Considering the government’s ambitious annual economic growth target [of 5%], the challenges and difficulties over the coming months will be substantial,” Wang Zhe, an economist at Caixin Insight Group, said.
Delve deeper: The Caixin/S&P Global PMI edged higher to 50.4 in August from 49.8 in the previous month. But the outlook still looks increasingly unpredictable. The survey tends to cover small- and medium-sized export-oriented companies.
Between the lines: “China’s economy is facing significant challenges, with the external environment and [its] own economic fundamentals having changed,” Tao Wang, the author of Making Sense of China’s Economy, told the National Public Radio last month.
China Factor comment: Winter appears just around the corner for an economy in free fall, forcing Beijing to rethink its export-based policy.