China’s industrial activity shrinks in August due to weak orders

Output at China’s factories contracted in August for the first time in three months as demand fell, power shortages and the COVID-19 outbreak hurt production.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.5 in August from 50.4 in July. This is lower than analysts’ expectations of 50.2.

“The economy is still slowly recovering from a widespread outbreak of COVID-19 in the first half of the year. Yet, local flare-ups and the punishing heatwave have disrupted the trend and created new downward pressures, posing a threat to the recovery“, said Wang Zhe, senior economist at Caixin Insight Group.

Factory output increased slightly in August. This reflects sluggish demand in the real estate sector, constraints from COVID-19 measures, and power rationing in the Southwest region due to extreme heat and drought.

The sub-index of new orders and orders from abroad fell again after two months of increases.

Manufacturers have cut jobs for the fifth month in a row to reduce costs. This has raised concerns about the weak labor market, which is having a strong impact on consumption and consumer confidence, and is also reducing material purchases due to fewer new orders.

Last week, the country’s cabinet approved new measures to boost the economy. These include measures worth several billion dollars to boost the struggling economy.

The central bank also cut interest rates on three major loans in August to reduce financing costs for companies and individuals.

However, as long as the country maintains its strict COVID-19 policy, many analysts expect weak growth and have lowered growth forecasts for this year and next.

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