Economic data takes the shine off China’s Golden Week
Factory activity suffers another hit as two PMI surveys illustrate that the world’s second-largest economy is cooling
No news is good news, especially when it is bad news. With the seven-day national holiday known as Golden Week underway in China, economic data will be in short supply.
It is probably just as well after the central government’s alleged directive to state-owned media last week to handle sensitive business data with care.
The document was later leaked to the The New York Times and included topics such as “worse-than-expected” statistics, “local government debt risks,” which have been regularly highlighted by Asia Times, and “the impact of the trade war with the United States.”
“It’s possible that the situation is more serious than previously thought or that they want to prevent a panic,” Zhang Ming, a retired political science professor from Renmin University in Beijing, said. “But in barring the media from reporting, things may get more chaotic.”
During the summer, the world’s second-largest economy showed signs of cooling with manufacturing profits slowing for four consecutive months. Mainland markets have also fallen to levels not seen in the past four years.
All this comes at a time when business confidence in China has dipped.
Factory activity continued to lose momentum in September as illustrated by the official Purchasing Managers Index, which was released on Sunday.
The PMI, which is a key gauge of the economy, came in at 50.8 last month, compared to 51.3 in August, the National Bureau of Statistics stated.
Even though the numbers indicated a slowdown, they remained just above the 50-point mark, which separates expansion from contraction.
“Production continued to expand while market demand remained generally stable,” Zhao Qinghe, a senior statistician at NBS, said.
But a report from China International Capital Corporation, one of the country’s leading investment banks, indicated that the manufacturing sector was facing strong headwinds as trade tensions with the US turn into a new economic Cold War.
To underline the problems facing industry, the Caixin PMI was also down last month. The index reflects sentiment in the private sector, as well as smaller companies, and dropped to 50 last month compared to 50.6 in August.
“Exports increasingly dragged down performance and continued softening demand [has had an] impact on companies’ production,” Zhong Zhengsheng, a director of macroeconomic analysis with consultancy CEBM Group, a subsidiary of Caixin Media, said. “Downward pressure on China’s economy was significant.”
Still, the official index of non-manufacturing activity was at least one tranquil stretch of water in a choppy sea. Last month, the sector expanded to 54.9 from 54.2 in August.
Also, it is important to remember that manufacturing accounted for about 30% of the gross domestic product, or GDP, in the first six months of the year, government data revealed.
“The services sector was responsible for the lion’s share of the country’s economic activity, accounting for 54% of the total GDP over the period,” Caixin reported.
Yet as tariffs on US$260 billion worth of Chinese exports to the US start to bite, the ruling Communist Party has launched a white paper underlining the importance of a “self-sufficiency.”
The aim behind the plan is to “revitalize” the country’s rust belts and rural areas.
“This is not a bad thing,” President Xi Jinping said last week, adding that rising unilateralism and protectionism was forcing China to become more self-reliant.
Global concerns have certainly increased in the past nine months.
These range from intellectual property rights to the Belt and Road Initiative, according to Julian Evans-Pritchard, a senior economist for Capital Economics in Singapore.
He pointed out that developed economies had become nervous about China’s worldwide ambitions, including the “Made in China 2025” strategy for moving into high-tech production.
“They [the Chinese authorities] are particularly concerned that the dispute with the US could be broadened towards the rest of the developed world,” Evans-Pritchard said. “It is noticeable that the US, the European Union, Japan and South Korea in some respects have taken a joint stand on issues like intellectual property.
“The Chinese leadership is going to be more wary of the West as a result of recent experiences,” he added.
Not the news they were hoping for, particularly during Golden Week.