[Source – wsj.com]
China’s factory activity likely remained in contraction for the fifth consecutive month in September, as domestic demand continues to weaken and global trade barriers increase, hampering the world’s second-largest economy. A Reuters poll of 22 economists projects the official purchasing managers’ index (PMI) will rise slightly to 49.5 from August’s 49.1 but still fall below the crucial 50-point mark, which separates growth from contraction in manufacturing activity.
Manufacturing Sector Faces Persistent Struggles
China’s factory activity has been under significant pressure, grappling with falling producer prices and a drop in orders. The latest blow came with August’s industrial profits plunging by 17.8% year-on-year, the largest decline this year and a stark contrast to July’s 4.1% growth. The downturn highlights the mounting challenges policymakers face in achieving China’s 2024 growth target of around 5%.
Economists are calling for more aggressive stimulus measures to revitalize the sector, particularly as the country entered the second half of the year with a shaky economic outlook. This continued contraction signals that without bold interventions, the government could struggle to steer the economy back toward stability.
Pressure Mounts for Government Intervention
As China’s economic slowdown persists, recent data indicates that the recovery remains fragile. In an unusual September Politburo meeting focused on economic issues, China’s top leaders acknowledged “new problems” facing the economy and called for stronger policies to stimulate growth. The leadership also stressed the importance of halting the ongoing decline in the property market and deploying additional fiscal spending as needed.
This meeting followed closely on the heels of China’s announcement of its most significant stimulus package since the COVID-19 pandemic, reflecting growing anxiety among officials about China’s factory activity and the overall economic situation. Reuters also reported that the government is expected to issue around 2 trillion yuan ($285.16 billion) in special sovereign bonds to support consumer spending and ease local government debt burdens, aligning with economists’ recommendations for more robust fiscal policies.
Global Trade Barriers Cloud Economic Outlook
China’s reliance on exports for economic recovery is facing new headwinds as Western nations, particularly the United States and the European Union, introduce trade restrictions. The U.S. is set to impose steep tariffs on Chinese products, including electric vehicles (EVs), starting Friday, with the EU expected to make a decision soon on potential tariffs on Chinese EVs. These trade restrictions could further cloud the outlook for China’s manufacturing sector.
Meanwhile, analysts predict that the private sector Caixin PMI will come in at 50.5, narrowly escaping contraction. Both the official PMI and the Caixin PMI are scheduled for release on Monday, offering clearer insight into the state of China’s manufacturing economy.
