- Economists say government must do more to hit growth target
- Manufacturing PMI posts 4th straight month in contraction zone
China’s remaining growth engines are showing signs of sputtering while the property market continues to drag on the economy, highlighting the urgency of government intervention to keep an increasingly unlikely growth target in sight.
Factory activity contracted for a fourth straight month in August, according to an official poll of manufacturers. The latest sales figures showed a worsening residential slump, after China Vanke Co. — one of the nation’s biggest developers — underlined the industry’s woes late Friday by reporting a half-year loss for the first time in more than two decades.
Even the private Caixin manufacturing purchasing managers index — which has tended to show stronger results — flashed warning signs, despite recovering to 50.4 last month after slipping into contraction in July. The cost of production materials fell for the first time in five months, while manufacturers slashed selling prices to remain competitive.
“The challenges and difficulties in stabilizing growth over the coming months will be substantial,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the data release on Monday. “There is an increasingly urgent need for China to enhance policy support.”
Beijing has struggled to contain the property downturn and now faces the prospect of increasing protectionism and a shaky global outlook weighing on exports. Several rounds of measures aimed at reviving domestic demand have done little to overcome the retreat, endangering the government’s growth target and spurring economists to call for additional stimulus.
The economic chill from China has shown signs of spreading across Asia. Taiwan’s manufacturing activity eased for a second straight month in August as confidence among firms fell to the lowest level this year on concerns about the global economy, according to data from S&P Global.
Although Taiwan’s purchasing managers’ index still indicated an expansion, Indonesia’s PMI fell to the lowest in three years to remain stuck in contraction territory for a second consecutive month. The reading for South Korea improved but stayed below June’s level.
“We believe more fiscal easing is necessary to help secure the ‘around 5%’ full-year growth target,” Goldman Sachs Group Inc. economists including Lisheng Wang and Andrew Tilton wrote in a note.
Year-to-date data show rising risks that revenues from tax and land sales will fall short of the budget projection this year, they wrote. That will weigh on government spending if there’s no upward revision to the official deficit target and no extra-budget quotas for government bond issuance.
What Bloomberg Economics Says…
“The economy will need more policy support to pull out of its extended period of weakness…Government spending will have to remain the key lever to lift aggregate demand when private demand is not forthcoming — and the pace needs to accelerate.”
— Chang Shu and Eric Zhu.
Economists at banks including UBS Group AG and JPMorgan Chase & Co. now expect China will fall short of delivering on its growth target.
Adding to the gloom, the official manufacturing PMI declined to 49.1 from 49.4 in July, the National Bureau of Statistics said. The reading has been below the 50-mark separating growth from contraction for all but three months since April 2023. Both the input-cost and output prices sub indexes declined in August.
In a statement accompanying the PMI data on Saturday, NBS analyst Zhao Qinghe attributed the latest contraction to high temperatures, heavy rainfall and a seasonal slackening of production in some industries. The non-manufacturing measure of activity in construction and services rose to 50.3, boosted by consumption during the summer holiday season, the statistics office said.
As trade tensions with the US and Europe increase, headwinds for the manufacturing sector are growing. For the mid-term outlook, much will depend on the outcome of the US election: former President Donald Trump has argued for 60% tariffs on Chinese imports, while Vice President Kamala Harris’s China policies are expected to be more in line with President Joe Biden’s approach.
On the property front, the latest data was also discouraging.
The value of new-home sales from the 100 biggest real estate companies fell 26.8% from a year earlier to 251 billion yuan ($35.4 billion), faster than the 19.7% decline in July, according to preliminary data from China Real Estate Information Corp.
At least 10 city governments have loosened or scrapped their new-home price guidance to let market demand play a bigger role, a move that’s expected to drive more real estate companies to cut prices.
China is considering allowing homeowners to refinance as much as $5.4 trillion of mortgages to lower borrowing costs for millions of families and boost consumption, Bloomberg News reported Friday. While lower mortgage rates would hurt profitability at state-run banks, analysts say it might help the real estate sector.
“In essence, it’s a transfer of wealth from banks to households, so positive for consumption,” said Larry Hu, head of China economics at Macquarie Group Ltd. “But the size is too small to be a game changer, given the current consumption landscape in China, which is pretty dire.”
The growth headwinds have yet to result in a more forceful government response, with less than half of budgeted expenditure completed in the first seven months of 2024. On Friday, Finance Minister Lan Fo’an said the economy is still growing at a clip of 5%, describing its performance in the first half as “generally stable and progressing steadily.”
But economists are calling for more support, especially if external demand wanes.
“In the near term, we expect the PBOC to guide commercial banks to lower existing mortgage rates,” said Lu Ting, an economist at Nomura Holdings Inc. “For bolder stimulus measures, we think this is more likely to happen in the fourth quarter, when Beijing’s concerns over growth become more elevated.”
Written by: Bloomberg News @Bloomberg
The post “ China’s Sputtering Growth Engines Raise Urgency for Stimulus” first appeared on Bloomberg
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