China’s economic dynamics

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For the first time since the early stages of the coronavirus pandemic, one of China’s most important indicators of manufacturing activity has contracted, increasing expectations that Beijing will take measures to support the economy.

The Caixin Manufacturing Purchasing Managers Index, which conducted an independent survey of factory activities, was 49.2 in August, falling below the 50 mark between monthly expansion and contraction for the first time since April 2020.

The data was released a day after the official PMI manufacturing data stopped shrinking but was 50.1, the lowest level since February last year. As the recent outbreak of Covid-19 has put pressure on activities, its measure of the service industry has fallen to negative values.

These indexes are one of the most obvious signs to date, indicating that the entire market is losing momentum China’s economy, Supported by the industry-driven recovery, last year’s performance was better than other large economies. But China is now struggling to cope with weak export demand, high raw material prices and a slowdown in the real estate industry.

Several analysts have recently lowered their growth expectations and expect the government to take further action to inject liquidity into the financial system after the People’s Bank of China lowered the bank deposit reserve ratio in July. David Chao, global market strategist at Invesco, said that the PMI data “may be an ominous signal for the upcoming monthly economic data.”

“In response to the deteriorating macro background, we believe that policymakers can increase monetary and fiscal stimulus,” he said.

The outbreak of the Coronavirus Delta virus has led to strict restrictions on travel and has hit the activity of the service industry, which has lagged behind a broader recovery as families remain cautious.

Zhang Zhiwei, chief economist at Pinpoint Asset Management, said that the decline in official service sector PMI may be attributed to the outbreak, but weak manufacturing “may indicate that the economy is facing more lasting pressure as the real estate cycle cools.”

China’s real estate industry is an important engine of overall economic activity. The construction industry soared last year, but large developers are facing pressure from Beijing to reduce their debt levels.Last year’s interest rate cut sparked concerns about U.S. asset bubbles Real estate industry, Local authorities also began to control prices.

“Continued monetary and fiscal easing measures do not seem to be enough to reverse the downward trend in economic growth, because the drag from the cooling of the real estate industry is too strong to fully offset,” Nomura Securities Chief Economist Lu Ting said at an investor forum this week.

According to calculations by Reuters based on national data, in July, as a sign of the policy’s effectiveness, new house prices rose at the slowest rate in six months, with the average price in 70 cities rising by 0.3% month-on-month. Bureau of Statistics.

Additional report by Sherry Fei Ju in Beijing