Rising Outlook Risks: PMI Surveys Predict a Challenging Summer for Chinese Factories – Reuters Report

By Ellen Zhang and Ryan Woo

In the heart of Beijing, amidst the bustling economic ebb and flow, a shadow looms over the once-vibrant manufacturing sector of China. The recent analysis and sentiment surveys paint a rather grim picture for factory owners and the broader economic landscape, heralding what could only be described as a “cruel summer.” This season is feared to bring about a new depth of challenges, especially with demand dwindling at an alarming rate, potentially placing the economic growth in the latter half of 2024 at substantial risk.

In a revealing study conducted by a private sector, which engaged with over 650 manufacturers, both private and state-owned, startling revelations were made. The survey, published on a Thursday, unveiled that for the first time in a span of nine months, the operating conditions within this sector saw a decline. This downturn is primarily attributed to a significant drop in new orders, thus underscoring the fragility of the sector’s current state.

More detailed insights emerged from the Caixin/S&P Global manufacturing Purchasing Managers’ Index (PMI), which took a hit, descending to 49.8 in July. This marked a deviation below the critical 50-point threshold, delineating growth from contraction, from a previous 51.8. This descent into the contraction territory, recording the lowest reading since the preceding October, did not only shock analysts but also fell short of their forecasted 51.5 PMI.

The disenchantment was further compounded by the unexpected downbeat findings of this survey, which predominantly reflects on export-oriented firms. This comes closely on the heels of another official PMI survey encompassing larger conglomerates that mirrored the grim narrative with reduced order flows and suppressed price levels.

The causative factors for the PMI’s downward trajectory could be traced back to a steep decline in new orders for the first time in a year, as surveyed respondents lamented the subdued demand and cuts in client budgets. A deeper dive into sub-sector data reveals an interesting dynamic; while investment and intermediate goods bore the brunt of declining new orders, the consumer goods sector managed a slight expansion in July.

Indeed, the manufacturing sector seems poised on the brink of a “cruel summer,” especially after the official PMI data elucidated a softer economic momentum for July. Analysts at Citi Research anticipate that industrial production might have crawled to a 4.8% year-on-year growth from 5.3% in June. Additionally, the factory-gate prices are feared to have continued their downward trend.

“The paramount issues plaguing the sector encompass insufficient effective domestic demand coupled with a lackluster market optimism,” elucidates Wang Zhe, a seasoned economist at Caixin Insight Group. He further advocates for policy interventions aimed at stabilizing growth.

In an attempt to navigate through this turbulence, some manufacturers have taken to lowering their selling prices, striving to buoy sales amid escalating competition, as revealed by the survey. Meanwhile, employment metrics appeared stable, with the rate of job losses maintaining its position, entrenched in contractionary territory for nearly a year.

China, the globe’s second-largest economic powerhouse, missed its growth forecasts for the second quarter, grappling with deflationary pressures. This economic tumult is characterized by retail sales and imports lagging significantly behind the industrial output and exports.

Amid these challenging times, China’s ruling Communist Party has been forthright about the stiff headwinds disrupting economic tranquility. An official statement from a recent politburo meeting highlighted domestic demand as “insufficient,” with major sectors wrestling with risks and “dangers” as traditional growth engines are gradually replaced by new ones.

In a sweeping move to rejuvenate consumption, China has unveiled a plan involving the allocation of around 150 billion yuan ($20.74 billion) from a whopping 1 trillion yuan ultra-long special treasury bonds issuance. This fund is earmarked for subsidizing the replacement of old appliances, cars, electronic bicycles, among other goods.

Despite the overarching gloomy new orders, it’s somewhat refreshing to see that export orders maintained an increasing trajectory in July, albeit at a decelerated pace from June, as per the insights from the Caixin survey.

As China navigates the latter half of the year, it finds itself at the crossroads of high geopolitical tensions, supply chain perturbations due to protectionist stances, not to mention shipping congestion and escalating fees thereof, as voiced by Lv Daliang, a customs spokesperson, on a Tuesday.

The economic vista dominated by the manufacturing sector’s strife and the broader implications for China’s growth trajectory surely captivates attention. However, for readers yearning to dive deeper into the vibrant tapestry of global economic affairs, look no further than DeFi Daily News for more trending news articles like this, where the pulse of economic dynamics is at your fingertips.

In conclusion, amid the tumult and the tremors shaking the foundation of China’s manufacturing sector, a canvas of resilience is sprawled before us. Innovations, policy adjustments, and a hawk-eyed focus on both domestic consumption and export dynamics may pave the path out of this ‘cruel summer.’ As watchers of this unfolding economic saga, let’s remain anchored in hope, for after every downturn, recovery isn’t just a possibility; it’s an anticipation.