Daily Management Review

As Covid Flares Up, China's Industry Activity Unexpectedly Declines In July


As Covid Flares Up, China's Industry Activity Unexpectedly Declines In July
According to a poll released on Sunday, China's manufacturing activity fell sharply in July after rebounding from COVID-19 lockdowns the month before, as new viral outbreaks and a bleak global outlook weighed on demand.
The official manufacturing purchasing managers' Index (PMI) fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics (NBS) said, below the 50-point mark that separates contraction from growth and the lowest in three months.
"The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation," NBS senior statistician Zhao Qinghe said in a statement on the NBS website.
According to him, the July manufacturing PMI was dragged down by continued contraction in energy-intensive industries such as gasoline, coking coal, and ferrous metals.
In July, the output and new orders sub-indices declined by 3 and 2 points, respectively, while the employment sub-index fell by 0.1 point.
In a research report, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, stated that weak demand has hampered recovery. "As the rebound is gradual and fragile, Q3 growth may encounter bigger obstacles than predicted," he noted.
The official non-manufacturing PMI dipped to 53.8 in July from 54.7 in June. The official composite PMI, which covers manufacturing and services, dropped from 54.1 to 52.5.
The Chinese economy hardly expanded in the second quarter due to widespread lockdowns, and top leaders recently signalled that their stringent zero-COVID policy will remain a major priority.
State media stated following a high-level meeting of the ruling Communist Party that policymakers are prepared to miss their GDP growth target of "about 5.5 per cent" this year. 
Beijing's decision to cut the aim has put an end to anticipation that the authorities may unleash large stimulus measures, as they have in prior downturns.
According to Capital Economics, policy constraint, combined with the continual prospect of future lockdowns and low consumer confidence, is likely to prolong China's economic recovery.
Following a June comeback, the recovery in the world's second-largest economy has stalled as COVID flare-ups have resulted in tighter restrictions on activity in several areas, while the once-mighty property market lurches from crisis to crisis.
As the export picture remains clouded by fears of a global recession, Chinese manufacturers continue to grapple with rising raw material prices, which are reducing profit margins.
Shenzhen, China's southern megacity, has committed to "use all resources" to combat a slowly expanding COVID outbreak, demanding tight testing and temperature inspections, as well as lockdowns for COVID-affected buildings.
Tianjin, a port city with firms linked to Boeing and Volkswagen, and other locations strengthened controls this month to combat new outbreaks.
According to World Economics, the lockdown measures had an impact on 41 per cent of Chinese enterprises in July, despite the fact that its indicator of manufacturing company optimism increased dramatically from 50.2 in June to 51.7 in July.