On August 31, 2024, in Qingzhou Economic Development Zone, Shandong Province, a worker assembled a corn combine harvester in a factory.
Chief Photography | Future Publishing | Getty Images
China’s manufacturing activity fell to a six-month low in August as factory gate prices plummeted and owners struggled to secure orders, an official survey showed on Saturday, forcing policymakers to press ahead with more stimulus packages for households.
The National Bureau of Statistics’ Purchasing Managers’ Index fell to 49.1 from 49.4 in July, falling for the sixth consecutive month and the fourth month below the 50 threshold. It missed the median forecast in a Reuters poll of 49.5.
The world’s second-largest economy lost further momentum in July after a dismal second quarter, prompting policymakers to signal they are ready to abandon injecting money into infrastructure projects and instead target new measures for households. stimulus measures.
Sentiment among manufacturers remains subdued due to sluggish domestic demand due to a years-long housing crisis and Western restrictions on Chinese exports such as electric vehicles.
Producers reported factory-gate prices at their worst in 14 months, plummeting to 42 from 46.3 in July, while sub-indexes for new orders and new export orders remained firmly in negative territory, with manufacturers maintaining hiring pauses.
“The fiscal policy stance is still quite strict, which may be one of the reasons for the weak economic momentum,” said Zhang Zhiwei, chief economist at Pindian Asset Management.
“To achieve economic stability, the fiscal policy stance needs to become more supportive. As the U.S. economy slows, exports may no longer be as reliable a source of growth as they were in the first half,” he added.
Policy advisers are considering whether Beijing might decide in October to bring forward some of next year’s bond issuance quotas if economic growth shows no signs of bottoming out over the summer.
China also took similar measures during the same period last year, launching stimulus measures to increase the deficit as a share of GDP from 3.0% to 3.8% and loading up part of the 2024 local government debt quota for flood control and other infrastructure investments.
However, analysts expect that this time authorities will seek to provide a floor to sluggish domestic demand.
early encouraging signs
Retail sales topped expectations last month, apparently vindicating officials’ decision in July to raise about 150 billion yuan ($21 billion) in ultra-long-term government debt this year to subsidize trade-in programs for consumer goods.
The non-manufacturing PMI, which includes services and construction, rose to 50.3 from 50.2 in August, easing concerns that it would also enter a period of contraction.
Still, economists are awaiting more concrete plans to revive China’s consumer market of 1.4 billion people, beyond a pledge from the ruling Communist Party’s top decision-making body to do so.
It’s not easy.
“I’m actually not sure if more stimulus can be rolled out,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. Given the size of the trade plan, he said the plan “will provide modest support to the economy” and “it appears that Popular with consumers.
What’s more, any efforts to revive domestic demand are likely to be ineffective unless further steps are taken to mitigate the severe decline in the real estate sector, which has put heavy pressure on consumer spending over the past three years.
With real estate accounting for 70% of household wealth and a quarter of the economy at its peak, consumers have been keeping their wallets tight.
A Reuters poll on Friday predicted that house prices would fall 8.5% in 2024, a bigger drop than the 5.0% forecast in a May survey.
“I think officials will be content with less than 5% this year,” said Xu of the Economist Intelligence Unit (EIU), referring to Beijing’s annual growth target.
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