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China’s economic recovery stalls in August

China’s economic recovery stalls in August

A slowdown in factory production and a contraction in the services sector in August have hampered China’s economic recovery from the damage caused by the coronavirus pandemic.

Factory activity expanded at a slower pace than the previous month, while the services sector contracted, according to figures from the National Bureau of Statistics (NBS).

Its report said fresh outbreaks of the Covid-19 delta variant, high raw material prices, a slowdown in exports, tighter measures to regulate property prices and a carbon emissions reduction campaign all contributed to weakening momentum for a strong recovery to date.

NBS data showed that the manufacturing purchasing managers’ index (PMI) was at 50.1 in August. This was lower than the previous month’s 50.4 figure.

The non-manufacturing PMI at 47.5 was below the 50 mark that indicates growth, and was well below the previous month’s 53.3 reading.

Though slower to recover from the impact of the coronavirus pandemic than manufacturing, the gradual improvement in consumption over the summer had boosted the services sector. But regional outbreaks of the more infectious Delta strain of Covid-19 prompted the introduction of strict containment measures, slowing both business activity and consumer spending.


‘Notable’ slowdown in growth

Nomura analysts commenting on the NBS statistics said: “The worse-than-expected August PMIs add conviction to our view that the growth slowdown in the second half could be quite notable. We expect Beijing to maintain its policy combination of ‘targeted tightening’ for a few sectors, especially the property sector and high-polluting industries, complemented by ‘universal easing’ for the rest of the economy.”

Other analysts told China Daily that they expect the People’s Bank of China (PBOC) to further cut the amount that cash banks must hold as reserves later in 2021, in order to boost growth. PBOC has already cut the amount in July 2021, which released around one trillion yuan ($154.54 billion) in long-term liquidity into the economy.

“The latest surveys suggest that China’s economy contracted in August as virus disruptions weighed heavily on services activity. Industry also continued to come off the boil as supply chain bottlenecks worsened and demand softened,” according to Capital Economics senior China economist Julian Evans-Pritchard.

While most of the weakness should reverse with relaxing Covid-19 restrictions, tight credit conditions and weakening foreign demand will continue to weigh on China's economy, Evans-Pritchard added.

The official August composite PMI, which includes both manufacturing and services activity, fell to 48.9. In July the figure was 52.4.