China’s economy facing increasing pressure as semiconductor, coal, power shortages weigh heavy

·3-min read

Increased downwards pressure is expected to descend on China’s economy in the second half of the year, economists said, after leading indicators pointed towards an overall softening of business activity.

China’s official manufacturing purchasing managers’ index (PMI) eased for the third straight month to 50.9 in June from 51.0 in May, while the non-manufacturing reading dropped to 53.5 from 55.2, according to the National Bureau of Statistics (NBS) on Wednesday.

Both readings hit four-month lows, attributed to a shortage of semiconductors, coal and power and a coronavirus outbreak in the major export province of Guangdong.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

“We expect downward pressure on growth to increase in the second half [of the year], especially in the fourth quarter of 2021,” Lu Ting, chief China economist at Nomura, said on Wednesday.

“As pent-up demand fades, exports weaken as developed markets shift back to services consumption as they reopen, property-related tightening measures finally bite and surging raw materials prices suppress real demand.”

Exports played a crucial role in driving growth in the coronavirus pandemic-ravaged 2020. However, the new export orders subindex within the manufacturing sector dropped for the third consecutive month to 48.1 in June.

The deepening of the contraction highlights falling foreign demand for Chinese supplies amid progress in controlling the coronavirus in the likes of the United States and Europe, the NBS said.

“Export growth in the second half of the year may be under pressure,” said Li Chao, chief economist at Zheshang Securities.

He said that overseas supply has continued to recover, with exports from South Korea, India, Vietnam and other countries growing rapidly, which will leave less room for Chinese exports.

“An economic downturn in the fourth quarter might lead the monetary policy to become prudent but slightly loose,” Li added.

Latest economic data about world’s second-largest economy

Government advisers have already warned that it is necessary to maintain stimulus policies introduced since the outbreak of the coronavirus, which is likely to test Beijing’s efforts of balancing growth rate and financial risks.

Liu Yuanchun, vice-president of Renmin University and an economic adviser to China’s top leaders, warned that another risk facing China’s trade could come from the protracted rivalry between Beijing and Washington, compounded with potential large-scale adjustments by various nations over the industrial chain after the pandemic.

“The US’ containment strategy based on a democracy supply chain alliance is advancing faster than we expected,” he said at the weekend.

“If we don’t plan ahead for how to expand domestic demand, once the external environment reverses, the overall production gap and overcapacity situation in China may be even more severe than that of 2019.”

The growth engines are still there … Covid in June affected consumption services in shops and restaurants but boosted online activities

Iris Pang

Consumption, though, is viewed to be moderately improving, as the new orders subindex within the official manufacturing PMI rebounded in June, while the economic growth momentum remained solid.

“The growth engines are still there … Covid in June affected consumption services in shops and restaurants but boosted online activities,” said Iris Pang, chief economist for Greater China at ING.

Zhong Zhengsheng, chief economist at Ping An Securities, said that the impact from production delays and intensified safety checks put in place before the 100th anniversary of the Communist Party is “likely to wane” in July.

More from South China Morning Post:

This article China’s economy facing increasing pressure as semiconductor, coal, power shortages weigh heavy first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting