China's factory sectors shrink once more during August
China's economic growth showed signs of slowing in the third quarter, as the composite PMI of manufacturing and non-manufacturing edged down to 50.5 in August from 50.2 in July. This slight decrease indicates a persistent weak domestic demand and a cooling property market are affecting the country's economic momentum.
The official purchasing managers' index (PMI) for August was 49.4, slightly higher than July's 49.3 but still below the 50-mark separating growth from contraction. Meanwhile, the non-manufacturing PMI index, which includes services and construction, expanded at a quicker pace in August, reaching 50.3.
Urban unemployment also edged up to 5.2% in July from 5% in June, adding to the concerns about the country's economic health. Furthermore, profits at China's industrial firms fell for a third straight month in July, reflecting the struggles businesses are facing.
One of the key factors contributing to these struggles is subdued demand and factory-gate deflation. Additionally, a prolonged property slump is still crimping spending in China. Households' reluctance to take out mortgages was reflected in July bank lending data, which contracted for the first time in 20 years.
However, policymakers have ramped up consumer subsidies to boost the economy. The results of the RatingDog PMI for September 2021, researched by RatingDog itself, are expected to show an improvement, with analysts forecasting the private sector RatingDog PMI to come in at 49.7, up from 49.5 a month prior. The data will be released on Monday.
China's economy is facing pressures from various fronts. Weakening exports due to U.S. tariffs, a property sector downturn, rising job insecurity, heavily indebted local governments, and extreme weather are all taking a toll.
In July, exports beat forecasts, but the growth was supported by a low base and a surge in shipments to Southeast Asia, as Chinese exporters strive to grow market share there amid fears of losing access to the U.S., the world's top consumer market. The U.S. and China extended their tariff truce for another 90 days, but levies of 30% on Chinese imports and 10% Chinese duties on U.S. goods remain in place.
The macro outlook for the rest of the year depends on the durability of exports and the potential for more supportive fiscal policy in Q4, according to Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. As China navigates these challenges, the economic momentum will continue to be closely watched by analysts and policymakers alike.
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