- China’s economy faces immediate internal challenges as weak demand holds back production.
- Two recent indicators of Chinese manufacturing activity point to strong export demand amid weak domestic sentiment.
- China’s real estate crisis and sluggish consumer confidence are weighing on manufacturing activity.
China’s economy is being hit by rising tariffs from its main trading partners, the United States and the European Union, but this may not be its most immediate threat.
Rather, sluggish domestic demand in China appears to be the more pressing problem.
In June, China Official Purchasing Managers’ Index Gross domestic product (GDP), which represents large companies and state-owned enterprises, fell for the second consecutive month.
in contrast, S&P Global PMI figures Statistics reflecting activity by export-oriented small and medium-sized enterprises showed output growth hit its highest level in three years in June.
That means that even as demand for Chinese-made products is growing abroad, consumer demand within China is slowing.
This divergence is important because China, the world’s factory, could face a drop in global demand for some of its exports after trade tariffs are imposed.
“There are concerns that the Chinese economy may not be able to sustain a strong recovery relying solely on exports,” Nomura economists wrote in a recent report.
Nomura economists said market confidence in China’s economic recovery was fading and China’s benchmark About CSI300 The index has given up gains since reaching its peak in May.
Exports may continue to support growth in coming months but “they will not be able to overcome the domestic weakness”, said Eric Chew, a senior banker at Britain’s largest bank. Bloomberg Economics, Said on monday.
Reluctant Chinese consumers are hampering factory operations
China’s PMI index highlights the challenges facing the country’s economy.
China is currently undergoing a painful economic transition that is leading to economic imbalances.
It also faces a major real estate crisis, stock market volatility, geopolitical headwinds and demographic challenges.
Economic uncertainty is weakening consumer confidence and risk hedging. People are putting their money Money It’s about experiences, not discretionary products.
Weak consumer demand is bad for the Chinese economy as it could exacerbate a vicious cycle of deflationary pressures on the back of rising wages and slowing consumer spending.
“The divergence between expanding production and contracting new orders suggests supply-side activity data may continue to outpace demand-side activity data, which is likely to keep exerting downward pressure on commodity prices,” Nomura economists wrote in a separate note on Monday.
Vishnu Varathan, chief economist for Asia (ex-Japan) at Mizuho Bank, wrote on Monday that the contraction in the official manufacturing Purchasing Managers’ Index (PMI) and the fall in industrial profits confirmed concerns about “‘too little, too late’ policy stimulus.”
“Doubts are naturally growing about whether Beijing is controlling the economic recovery,” Varathan added.