Activity in China’s vast factory sector contracted last month for the first time since the COVID-19 pandemic began, the latest sign of deceleration in the world’s second-largest economy.
The drop in the official manufacturing purchasing managers’ index below 50, which signals a decline in output, shows the damage a widespread electricity crunch is having on growth.
Alongside tough measures to rein in the property market, the latest developments have led economists to pare back full-year growth predictions below 8 percent and warn that Beijing could be willing to tolerate a sharper slowdown as it tries to reform its economic model.
Photo: AFP
The problem for the economy is that manufacturing and property investment have been the main drivers of growth since the pandemic hit, while consumption growth remains relatively weak with households still cautious about travel and eating out.
Property curbs and electricity shortages, which have caused power cuts across China this week, were “a double whammy on the key drivers of growth this year,” said Bo Zhuang, China economist at Loomis Sayles Investments Asia. “A further growth slowdown is inevitable.”
Beijing is focused on preventing instability. The central bank told financial institutions that to prevent fallout from the property slowdown, which has exacerbated a debt crisis at China Evergrande Group (恆大集團), targeted financial easing aimed at the manufacturing sector might be likely.
However, economists see little prospect of relaxation on tough policy, such as curbs on housing purchases and energy use limits, until December, when Chinese President Xi Jinping (習近平) and top officials meet to set economic priorities.
“Additional policy support will need to come soon to avert a sharp deceleration in growth. The economy’s near-term outlook is highly challenging and uncertain. Headwinds include softening external demand, continued virus risks and a lack of fast, ready solutions for the energy shortages. Regulatory tightening is also a significant drag,” Bloomberg Economics said.
When the government set its growth target at “above 6 percent” in March, economists saw it as modest against their own predictions of greater than 8 percent. Many are now rethinking their views, with major banks from Goldman Sachs Group Inc to Nomura Holdings Ltd downgrading their forecasts in recent weeks to as low as 7.7 percent.
Chinese factories in 21 provinces have been hit by power cuts in the past few weeks, largely driven by a spike in coal prices that made it unprofitable for power plants to sell electricity at fixed prices. The brunt of the effect was in the official manufacturing purchasing managers’ index, which declined to 49.6 from 50.1 in August, below the 50 median estimate in a Bloomberg survey of economists.
Beijing has scrambled to solve the problem by allowing power companies to raise prices and funneling more coal to the sector. Those efforts could get production going again in many factories, but that relief might not come for weeks.
Beyond that, Beijing is signaling that it wants highly energy-intensive producers, like steel and chemical factories, to reduce output for the rest of the year, as it tries to meet environmental targets. China’s aim to reduce energy intensity, or how much power is needed to drive output, by about 3 percent this year could drag down full-year growth by 0.3 to 0.6 percentage points, said Ming Ming (明明), head of fixed income research at Citic Securities Co.
A rollback of energy intensity targets before the end of the year is unlikely, said Chen Long (陳龍), a partner at consulting firm Plenum.
Elon Musk’s lieutenants have reached out to chip industry suppliers, including Applied Materials Inc, Tokyo Electron Ltd and Lam Research Corp, for his envisioned Terafab, early steps in an audacious and likely arduous attempt to break into the production of cutting-edge chips. Staff working for the joint venture between Tesla Inc and Space Exploration Technologies Corp (SpaceX) have sought price quotes and delivery times for an array of chipmaking gear, people familiar with the matter said. In past weeks, they’ve contacted makers of photomasks, substrates, etchers, depositors, cleaning devices, testers and other tools, according to the people, who asked not to
Taichung reported the steepest fall in completed home prices among the six special municipalities in the first quarter of this year, data compiled by Taiwan Realty Co (台灣房屋) showed yesterday. From January through last month, the average transaction price for completed homes in Taichung fell 8 percent from a year earlier to NT$299,000 (US$9,483) per ping (3.3m²), said Taiwan Realty, which compiled the data based on the government’s price registration platform. The decline could be attributed to many home buyers choosing relatively affordable used homes to live in themselves, instead of newly built homes in the city’s prime property market, Taiwan Realty
JET JUICE: The war on Iran’s secondary effects have seen fuel prices skyrocket, knocking flight schedules down to earth in return as airlines struggle with costs Airline passengers should brace for more irritation in the next few months as carriers worldwide cancel flights and ground planes to cope with stratospheric increases in jet-fuel prices. Dutch flag carrier KLM is the latest company to cut its schedule, saying on Thursday that it would scrap 80 return flights at Amsterdam’s Schiphol Airport in the coming month. That puts it in the same league as United Airlines Holdings Inc, Deutsche Lufthansa AG and Cathay Pacific Airways Ltd, which have all pruned itineraries to mitigate costs. Global capacity for next month has been reduced by about 3 percentage points, with all
Taiwan is attracting a growing number of foreign jobseekers as companies increasingly recruit overseas talent to ease labor shortages and expand global reach, recruitment platform 104 Job Bank (104人力銀行) said yesterday. More than 40,000 foreign nationals searched for jobs in Taiwan through the platform last year, a 28 percent increase from a year earlier, the company said. Malaysians accounted for the largest share of overseas jobseekers at 12.2 percent, followed by Indonesians at 11.9 percent and Vietnamese at 10.8 percent. Indonesian applicants surged more than 50 percent year-on-year, while Vietnamese jobseekers rose by more than 30 percent. Applicants from the
RSS