April turned out to be another miserable month for China’s economy and the country’s faltering currency and markets – and for the hundreds of millions of people suffering from the botched Covid control measures of President Xi Jinping and his government.
Xi and his government are clinging to the discredited and contradictory aim of eliminating Covid and tanking the economy, not controlling and living with the virus and trying to grow the economy.
That saw the yuan suffer its steepest monthly fall on record last month and Chinese stockmarkets lost between 5% to 7% as China’s economy was undermined by the severe Covid-19 lockdowns which strangled activity across the country. Adding to the pressures was the US Federal Reserve’s stepped-up attitude toward raising interest rates.
Saturday saw the outcome from the botched Covid policy with official and private surveys of economic activity across manufacturing and service sectors falling to the lowest level since the start of 2020 and the depths of the first wave of Covid.
China’s economy tumbled deeper into contraction in April has the President Xi Jinping’s policy of zero elimination of Covid strangled the economy, especially retail sales and services as the lockdowns of Shanghai and other major cities and provinces, and then the tightening of controls in Beijing late in the month added to the gloom.
The National Bureau of Statistics (NBS) composite activity survey (covering manufacturing and services) fell to the lowest level since February, 2020 as the Covid strategy backfired, damaging consumer spending, manufacturing and confidence.
At the same time, the private manufacturing survey from IHS Markets and Caixin magazine dipped deep into the negative with a reading 46 in April from 48.10 in March.
The NBS said its Composite PMI Output Index fell to 42.7 in April of 2022 from 48.8 in March and the lowest for 26 months.
Activity in both manufacturing and services contracted for the second month in a row while falling at the steepest pace in over two years, respectively.
In an attempt to soften the impact of the worse than forecast reading for it and the two other surveys, China’s National Bureau of Statistics said in a statement that the country’s fundamental long-term growth have not changed and that the government has stepped up various policies to support the economy and stabilise market confidence.
That’s a reference to statements on Friday from Xi and from senior government regulators that major stimulus plans are coming.
The official Manufacturing activity survey fell to a reading 47.4 in April from 49.5 in March and below market forecasts of 48.0. It was also the biggest fall since February, 2020.
The official NBS Non-Manufacturing activity survey (for services for China sank to 41.9 in April of 2022 from February’s reading of 48.4, a surprisingly larger fall that expected and reflecting the downward pressure from tough COVID-19 measures following outbreaks in many cities, including Shanghai and Beijing.
Not even yet another promise from the government and President Xi of more stimulus spending on infrastructure etc (loverly big ticket items) The Chinese currency fell 4% in April to about Rmb6.58 to dollar, the biggest drop since the end of its US dollar peg, which was in place from 1994 to 2005.
The fall is greater than a one-off devaluation by the Chinese central bank in 2015 that rattled global markets and a tumble in 2018 during the US-China trade war under the Trump administration. The currency actually fell to 6.66 to the dollar in early trading, sparking fears that the authorities had lost control.
Now foreign analysts wonder if this big fall is a signal that the Chinese government is about to slide into a nasty recession, made worse by the ham-fisted way the Xi still wants to eliminate Covid at the cost of sending economic activity, especially consumer spending into a deep sleep.
it’s no coincidence that the downward pressure on the yuan against the US dollar has intensified over the past two weeks amid more lockdowns across China.
China’s financial hub Shanghai has been in lockdown for a month with no sign of it easing any time soon, and as the outbreaks continue to spread and Beijing has now rolled out restrictions. A reported 46 of China’s 70 biggest cities are under some sort of control or lockdown and mass testing. That covers well over 360 million people (or more than the population of the US)
“The bad news is that the lockdown is likely to persist in Shanghai and some other regions as the local cases are still far from being contained from the authorities’ perspective,” Commerzbank analysts wrote on Friday as the currency was crunched – but markets ended high on the latest stimulus promise.
Foreign investors have sold tens of billions of dollars of Chinese shares, bonds and other securities this year as investors have lost of confidence in the policies of President Xi Jinping.
