A still mixed picture of the Chinese economy after the release of the monthly surveys – this time for September – of manufacturing and service sector activity.
The three surveys came out the day before China heads into the week-long National Holiday break which will be a time of greater patriotism than in previous years with China under pressure externally and domestically where the shortage of energy is wreaking havoc, along with the self-inflicted cuts to production of a long list of important products in an attempt to cut carbon emissions.
The official survey of manufacturing from the National Bureau of Statistics showed a dip into contraction for the first time in 18 months, but the Caixin survey of manufacturing showed a surprise recovery to a neutral reading from August’s contraction.
The NBS survey of non-manufacturing (services) showed a sharp bounce back into expansion from the equally sharp slide into contraction in August.
For that we can blame the Covid outbreaks in August and their fading in September. But cost pressures and rising input costs remain concerns, especially for energy (the surveys did not fully capture the electricity rationing and production curbs in 10 of the country’s provinces in the last week of the month – especially in the northeast and in and around Guangdong in the southeast of the country.
The official NBS Manufacturing PMI for China (which concentrates on larger companies) unexpectedly was at 49.6 in September, compared with market expectations and August’s figure of 50.1.
This was the first contraction in factory activity since February 2020, with output (49.5 vs 50.9 in August), new orders (49.3 vs 49.6), and export sales (46.2 vs 46.7) all declining, amid the Delta variant of COVID-19 outbreaks, higher material cost, production bottlenecks, and more recently, electricity rationing.
Buying levels were also reduced (49.7 vs 50.3), and employment dropped for the sixth straight month and was at a steeper rate (49.0 vs 49.6).
On the price front, both input cost (63.5 vs 61.3) and selling prices (56.4 vs 53.4) went up at faster paces. Looking ahead, sentiment weakened for the seventh month in a row (56.4 vs 57.5).
A different picture came from the Caixin survey which favours smaller to medium companies, but even so there were signs of underlying problems in employment and cost pressures.
The Caixin survey rose to 50.0 in September from 49.2 in the prior month and beating market estimates of 49.5.
New orders rose for the first time in three months and buying levels returned to growth while output fell at a softer rate.
Meantime, exports sales continued to weaken while employment dropped for the second straight month and at a steeper pace.
On the cost side, inflationary pressure surged with input prices rising the most in four months (producer prices are running at 9% or more for many companies), its 16th straight month of increase, amid reports of greater energy and raw material costs.
Looking forward, sentiment strengthened to its highest since June, underpinned by forecasts of an end to the pandemic, planned company expansions, rising customer demand, and new product launches.
And finally the NBS survey of service sector activity really surprised with a reading of 53.2 in September from an 18-month low of 47.5 in August, as COVID-19 outbreaks receded.
New orders (49.0 vs 42.2 in August), new export orders (46.4 vs 43.9), and employment (47.8 vs 47.0) still contracted, but at at softer rates. Price data showed input cost inflation accelerated (53.5 vs 51.3) while selling prices rose after falling in August (50.5 vs 49.3).
Will that translate into an uptick in retail sales for the month – we won’t know for 17 days.
…………
Meanwhile no sign of any improvement in the power crisis, even though official media claim it is on its way to be sorted out.
The Chinese government gave lie to that optimism with demands on Wednesday that railway companies and local authorities do better in finding and shipping more coal supplies to utilities, as the power cuts continue
The order, from the National Development and Reform Commission (NDRC), China’s top planning body came as attempts to curb carbon emissions ahead of the climate change conference in November ran slap bang into a shortage of coal and gas – which saw surges surge to record levels without demand being filled.
Thermal coal futures in China hit an all-time high of 1,376.8 yuan ($US213) on Wednesday – adding yet more pressure on power utilities unable to recoup added fuel costs – Bloomberg reported that the government is looking at ways to allow utilities to boost power prices for the winter heating season, then reduce them after March next year.
The NDRC formally urged local economic planners, energy administrations and railway companies to beef up coal transportation to meet citizens’ heating demand during the winter season.
“Each railway company should strengthen coal transportation to power houses (utilities) with inventory of less than seven days and launch the emergency supply mechanism in a timely manner,” said the NDRC.
China, the world’s top coal consumer imported a total of 197.69 million tonnes of coal in the first eight months of 2021, down 10% year-on-year on the 220 million tonnes the year before, just as the ban on Australian coal imports started.
That ban has added to the problems because Australian thermal coal was used as swing supplier to maintain stocks at power utilities on the eastern and south-eastern coastal provinces, especially Guangdong.
Power rationing is continuing in peak hours in many parts of northeastern China since last week, with news reports and social media posts signalling outages of traffic lights and 3G communications networks in the region.
