The economic story of 2023 was supposed to be one where the re-opening of China after Covid saw its economic growth surge again.Except as we have been noting increasingly the economic engine has been rather stuttering. Back on the 17th of this month we looked at some disappointing manufacturing and production figures for April and this morning there is this to add to the mix. From the National Bureau of Statistics.
In May , the Manufacturing Purchasing Managers Index ( PMI ) was 48.8% , down 0.4 percentage points from the previous month, lower than the critical point, and the level of manufacturing prosperity dropped slightly.
So we have two issues to consider. The first is that it tells us manufacturing is contracting and the second is that the rate of decline has sped up a little. Looking into the detail shows that it is smaller businesses which are slowing.
From the perspective of enterprise size, the PMI of large enterprises was 50.0% , an increase of 0.7 percentage points from the previous month, and was at the critical point; the PMIs of medium and small enterprises were 47.6% and 47.9% , respectively, a decrease of 1.6 and 1.1 percentage points from the previous month, and were below the critical point point.
Switching to the other sub-indices we see that production is in fact now falling rather than slowing and that the outlook us for more of the same.
The production index was 49.6 percent , a decrease of 0.6 percentage points from the previous month, indicating that the production activities of the manufacturing industry have slowed down.
The new orders index was 48.3 percent , a decrease of 0.5 percentage points from the previous month, indicating that the manufacturing market demand continued to fall.
As these are the official figures one has to wonder if they are presenting an optimistic picture.So at best we have a weak situation for China’s important manufacturing sector. Another way of looking at it is that relatively cheap Russian energy supplies do not seem to have insulated it from the problems facing the manufacturers of the western capitalist imperialists.
Services
Here there was better news in that growth was signaled, but even here it looks to be fading.
In May , the non-manufacturing business activity index was 54.5% , a decrease of 1.9 percentage points from the previous month, still higher than the threshold, and the non-manufacturing industry continued to recover. ( NBS)
If we look at the patterns we see manufacturing started to turn lower in February and services has followed with a one month lag. So that suggests another services fall next month.
The more high-tech industries are doing well and I cannot help but winder how much of this is due to the current progress in AI which we have seen highlighted by the share price of Nividia in the US.
Internet software and information technology services and other industries is in the high-level boom range above 60.0%;
The sector below can be read two ways. A cursory look welcomes the growth. But after the times we have looked at “empty cities” and surplus building how much of this does China actually need?
In terms of different industries, the business activity index of the construction industry was 58.2% , a decrease of 5.7 percentage points from the previous month.
Anyway at the rate of slowing that may soon be a moot point. Also with the times we have looked at the troubles in the property market the reference below poses another question.
the business activities of capital market services, real estate and other industries The index is below the critical point.
Indeed more than one as no doubt some of the capital market services come from real estate.
Property Market
Yesterday CNBC pointed out that there were signs of stalling here too.
“In a reversal from April, prices accelerated in the housing market but sales slowed,” the U.S.-based China Beige Book said in its report for May, released Tuesday. That’s based on the research firm’s survey of 1,085 businesses conducted from May 18 to 25.
“In commercial property, both pricing and transactions weakened sharply,” the report said. “Poor results in construction and reduced fiscal activity sent copper producers’ May earnings and production into contraction.”
Just as a reminder the boom means that much of China’s economy depends on this sector.
The property sector and related industries have accounted for more than a quarter of China’s economy, according to Moody’s estimates.
We had a flavour of that in the way that the apparent slow down so quickly affected copper producers. We can take that further as “Dr Copper” peaked at US $4.12 in futures terms in mid-April and is US $3.64 as I type this. That gives us another diagnosis of economic slowing.
Property Companies
We have looked several times at their struggles and in another signal the bad times have returned.
Some of the SOE property developers are at or near 52-week lows. It is not just the High Yield issuers that are showing weakness. ( @sunchartist )
One famous case looks ever more like a basket case.
China Evergrande Group said on Monday evening that its overdue debt, unpaid bills, and payments involved in lawsuits have piled up to nearly 900 billion yuan (US$127 billion), revealing the depth of the debt and legal woes the mainland Chinese developer faces amid its restructuring struggle. ( South China Morning Post)
If we look at Country Garden ( holding company) we see that the official support announcement for property in November led to quite a bounce. But with the share price at $1.44 today we are 68% lower than a year ago.
The Yuan
Back on the 17th I noted a big figure change here as it went through 7 versus the US Dollar. First offshore and then onshore. Now we see this.
Onshore #Yuan #CNY breaks through 7.1 per dollar mark for the first time since Nov 2020. ( @YuanTalks)
This has various implications of which the initial is that buying US Dollar commodities just got more expensive. Although as we have seen for Copper there is also an impact sending the base price lower so we should refine that to relatively more expensive.
In addition this is another issue for the property developers who borrowed in US Dollars as debt interest and repayments are getting more expensive.
Comment
The post lockdown boom for China seems to have ended very quickly. Manufacturing seems to be in trouble and the Wall Street Journal reminds us of how significant an issue this is.
China accounts for 31% of global manufacturing, according to the United Nations Industrial Development Organization, nearly twice the 17% share of the U.S.
The WSJ article was also about US companies thinking about perhaps producing less in China.
We can link this to yesterday’s post. Because in Europe the ECB is jamming hard on the monetary brake not only with Germany already in recession but now we see China slowing as well. Is it braking into an existing slow down?
On the more positive side there is some relief on a concern for us all which is/are energy prices.
#China’s most-traded #LPG futures contract in Dalian tumbles over 5% to drop below 3,900 yuan/tonne mark and hit 3,873 yuan/tonne, the lowest since Apr 2021. ( @YuanTalks)
Although for the central bankers that suggests they are treating the symptoms of inflation rather than the cause.
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