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China’s economy is being rattled by the Delta variant and supply chain problems

bynewsdesk
August 31, 2021

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An official survey of manufacturing activity fell from 50.4 in July to 50.1 in August. That was just above the 50-point mark, indicating expansion rather than contraction, but still the slowest growth since the start of the pandemic.
The service sectors, which now make up a larger proportion of the world’s second largest economy, fared even worse. The non-manufacturing purchasing managers index fell from 53.3 to 47.5 in July, the first contraction since February 2020.
The Chinese economy initially coped much better with the pandemic than many of its peers, recording growth last year while others shrank. But the consequences of the Delta variant and China’s zero-Covid approach have wreaked havoc in recent weeks.
The worst outbreak of the coronavirus in a year prompted authorities to take dramatic measures to stop new infections, including closing cities, canceling flights and suspending trade. The aggressive and uncompromising strategy appears to have held Delta in check at the expense of economic activity.

“The latest surveys suggest that China’s economy contracted last month as virus disruptions weighed heavily on services activity,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a research paper on Tuesday. He added that the drop in the PMI of non-manufacturing companies was entirely driven by service sector disruptions as “traffic restrictions were re-imposed and consumers became more cautious amid the virus’ resurgence”.

Persistent problems with the global supply chain have exacerbated matters. Global trade has been in chaos for months as production picks up and consumer demand explodes, and supply chains have been further entangled by container shortages, coronavirus-related factory closures in Vietnam and the ongoing effects of port closures in China.
A terminal at the port of Ningbo-Zhoushan south of Shanghai was closed for weeks after a dock worker tested positive for Covid-19, catching up with a previous shutdown in southern China, home to some of the world’s busiest container ports.
The Delta variant is just one of the clouds hanging over the Chinese economy

“There are still signs of supply shortages in the survey breakdown, with delivery times being further extended as companies continued to deplete their inventories of raw materials,” Evans-Pritchard wrote.

However, Covid outbreaks and shipping problems are not the only things China is dealing with. Beijing has also embarked on a massive crackdown on businesses. Technology, private education and other industries are all involved in the conflict.

The measures, particularly in the areas of technology and education, are “affecting both employment concerns among those affected and broader consumer confidence as fears of broader interventions mount,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific. Pacific at Oanda, on Monday.

Evans-Pritchard expected most of the weakness reported Tuesday to reverse in September as Covid cases in China are under control. But he said other concerns persist, pointing to tight credit conditions as a “growing impediment”.

“As a result, even if we look at the volatility caused by the recent virus flare-up in China, the economy appears to be getting back to earth,” he added.

Sources

1/ https://Google.com/

2/ https://www.cnn.com/2021/08/31/economy/china-economy-services-factories-intl-hnk/index.html

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