China’s Economic Recovery Wobbles as Risks Accumulate in August
China’s economic rebound leveled off in August, suggesting the growth momentum is faltering in the wake of the recent regulatory crackdown, the authorities’ tough response to virus outbreaks, and weak demand at home.
That’s the outlook from Bloomberg’s aggregate index of eight early indicators, which remained unchanged in August for the fourth consecutive month.
China’s economy slowed more than expected in July after staging a V-shaped recovery driven by exports and the industrial sector. The economy was hit by the spread of the highly-transmissible delta variant and natural disasters in central China, which affected both production and consumption. Constraints that are impeding the global recovery persisted, including a chip shortage, logistics bottlenecks and high raw material prices.
The Chinese government’s recent campaign to clamp down on industries ranging from steel to education and property added to the dim outlook for growth in the world’s second-largest economy.
China’s recovery continues to be unbalanced, as domestic private demand hasn’t recovered to the same extent as industrial production. Home sales weakened further in August, after authorities ramped up efforts to cool down the nation’s property market. Developers are now faced with increasing liquidity pressures due to tighter financing rules, while there are stricter purchase restrictions and higher mortgage rates for home buyers. Car sales tumbled as well.
Read more on how China’s Regulatory Crackdown Is Already Hurting the Economy
External demand has continued to hold up despite official warnings of deteriorating conditions for trade in the rest of this year and early 2022. South Korean exports, a barometer of world trade, rose 40.9% in the first 20 days of the month from a year earlier, indicating that exports are set to climb again in August.
However, that strength may not continue, as orders diverted from neighboring countries in Asia to China will drop once the pandemic gets under control in those countries and demand for personal protective gears will also plunge as the world economy gradually reopens, according to Chinese Commerce Minister Wang Wentao. “We will focus on making cross-cyclical adjustments to keep foreign trade within a reasonable range,” he said Monday.
Factory-gate inflation showed signs of easing in August, following a surprise pickup in the previous month. While the central bank has stated the surge in PPI “is most likely temporary” and inflation pressure is “controllable,” elevated inflation pressures will complicate any effort to halt an economic slowdown with more fiscal and monetary support in the second half of the year.
Confidence among small and medium-sized enterprises also weakened further in August on the virus resurgence and regulatory crackdown, according to a survey of more than 500 companies by Standard Chartered Plc. Sales and production in August expanded at a slower pace, while the ‘expectations’ sub-index fell to the lowest level in six months, the survey report showed.
The increasing headwinds facing China’s recovery have prompted a number of economists to cut their growth forecasts. The median forecast is for China’s economy to expand by 5.9% in the third quarter and 8.5% for the full year, according to Bloomberg surveys.
Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.
- Major onshore stocks - CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on 25th of the month).
- Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
- Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tones). Falling inventory is a sign of rising demand.
- Copper prices - Spot price for refined copper in Shanghai market (yuan/metric tonne).
- South Korean exports - South Korean exports in the first 20 days of each month (year-on-year change).
- Factory inflation tracker - Bloomberg Economics created tracker for Chinese producer prices (year-on-year change).
- Small and medium-sized business confidence - Survey of companies conducted by Standard Chartered.
- Passenger car sales - Monthly result calculated from the weekly average sales data released by the China Passenger Car Association.
©2021 Bloomberg L.P.