Chinese authorities are obviously worried about the slowing pace of activity in the economy and the instability in share and other financial markets – most of the latter being caused by the ham-fisted moves directed by the Communist Party against the country’s surging internet giants and emerging companies.
The People’s Bank of China (PBOC) said in a surprise statement on Saturday that the country will maintain a prudent, flexible and “reasonable” monetary policy in the second half of the year, emphasising stability.
The bank called for “rectifying virtual platform companies” (Chinese Communist party speak for bringing the big internet businesses like Alibaba, Ten Cent and idid under control of the party and the government) and to maintain a high level of pressure on such firms to meet regulations.
That was a comment that attempted to justify the crackdown on ride sharing, online music, after school tutoring and other areas of digital life and echoed a long statement from the Party’s Political Bureau (PolitBureau, the Communist Party’s controlling body) on Friday.
The crackdown has frightened investors – local and foreign and saw China’s securities regulators call a private meeting last Wednesday night in an attempt to try and calm nerves.
It didn’t work with markets down on Friday and the key CSI 300 – which includes China’s 300 biggest listed companies, down 0.8% on the day and 8% for the month of July – most of which came last week with a slide of 5%.
The central bank’s statement came a day after the PolitBureau issued a lengthy statement on Friday that said in part that “the nation will maintain the consistency, stability and sustainability of macro policies, ensure the alignment of macro policies between this year and the next and keep major economic indicators within a proper range.”
The statement said the meeting stressed the need to bolster the efficiency of proactive fiscal policy and enable the sustained recovery of smaller firms and struggling sectors with a proper and adequate level of liquidity.
That was echoed in Saturday’s statement from the PBOC, stressing the desire for a “proactive fiscal policy” which would make sure that struggling sectors of the economy will get “proper and adequate level of liquidity.”
Some western analysts wondered if that is a hint that more stimulus spending will appear from the central government. More than $US154 billion was released in mid-July by a reduction in bank reserves but that had no impact on the level of activity in manufacturing which is now close to contraction.
The statements came as that slide towards contraction was confirmed by the official survey of manufacturing activity in July.
The bottom line from the report was that China’s manufacturing activity slowed to the slowest pace in 17 months last month.
The report from the country’s National Bureau of Statistics showed a reading of 50.4 in July down from 50.9 in June. It is now much lower than the most recent peak of 52.9 in November of last year.
The official non-manufacturing survey showed the services sector remained solid with a small easing to 53.3 in July, from 53.5 in June. That means activities like retailing remain stronger than manufacturing.
The survey showed a rise in costs for manufacturers and a sharp fall in orders.
A reading above 50 signifies continuing expansion (and closer to 50 means slowing expansion) while under 50 it’s a contraction whose severity rises as the reading falls further away from 50.
Economists said that while China’s economy has largely recovered from disruptions caused by the pandemic, but manufacturers are grappling with new challenges from higher raw material prices and there is a rapidly growing outbreak of Covid’s delta variant in the eastern city of Nanjing.
That followed an outbreak in Guandong province in May through early July which impacted some exports. There’s also reports of infections in Fujian province on the coast.
Economists had forecast a fall to 50.8. It was the lowest figure since the index slumped to 35.7 in February 2020, as China began lockdowns to control the first Covid wave.
Record flooding in central China last month also hit activity, along with the growing attempts by the government to curb crude steel production in line with a drive to reduce emissions.
The manufacturing survey’s new order sub-index fell to 50.9, from 51.5, reflecting a slowdown in demand while the sub-index for new export orders fell to 47.7 on July, down for the third month in a row. A sub-index for raw material costs stood at 62.9 in July, compared with June’s 61.2, pointing to an increase in costs that is showing up in the monthly producer price index.
