CHINA’s economic activity slumped in November and could fall further in the coming weeks as outbreaks of the 2019 coronavirus disease (COVID-19) spread across the country and protests against tighter virus restrictions escalate.
Bloomberg’s composite index of eight leading indicators showed a likely contraction in activity in November from an already subdued pace in October. With COVID-19 cases now spreading rapidly across all Chinese provinces and major cities like Guangzhou, Beijing and Zhengzhou imposing new restrictions restricting residents’ movements, the outlook remains bleak.
Economists at Goldman Sachs Group Inc., Macquarie Group and Hang Seng Bank say the chances of further disruptions to growth are rising as authorities struggle to minimize Covid infections and deaths while gradually easing restrictions. Demonstrations erupted in cities including Beijing and Shanghai over the weekend as residents vented anger at virus controls.
The central bank ramps up stimulus measures to boost economic growth as analysts continue to downgrade forecasts. The economy is expected to grow just 3.3% this year, the latest Bloomberg survey shows, which would be the slowest pace since the 1970s excluding the 2020 pandemic slump.
The People’s Bank of China announced on Friday that it will cut the reserve ratio for banks by 25 basis points, effective next week. That would inject 500 billion yuan ($70 billion) of liquidity into the economy and allow banks to lend more to companies hit by Covid disruptions. More concerted steps have also been taken recently to bolster the housing market, which is currently in its worst downturn on record.
Bloomberg’s leading indicator index was 3 in November, the lowest level since April and May, when the economy nearly stalled during the lockdown in Shanghai.
Small businesses are already feeling the damage. The services industry contracted for the second straight month in November, falling to its worst level since May, according to Standard Chartered Plc. Domestically focused companies fared worse than export-oriented companies and expectations also fell.
Standard Chartered’s survey of more than 500 small and medium-sized businesses showed that the accommodation and hospitality sector fell the most in November, followed by declines in wholesale, retail and property sales.
Home sales in the four largest cities fell more than 30% in the first three weeks of the month, while the value of sales in the 50 largest cities continued to decline. Auto sales, which have been a bright spot for China’s economy due to government subsidies, also struggled this month.
The movement restrictions prevent residents from traveling across the country and within cities. In places like Beijing, Chongqing and Guangzhou, subway usage has plummeted. Just 12,000 trips were made on the Chongqing subway last Thursday, well below the daily average this year of 2.7 million trips.
Congestion in major Chinese cities also eased last week as restaurants, shops and some workplaces closed and people stayed home.
The spread of the virus is also affecting industrial production. Riots at an iPhone factory in Zhengzhou highlighted the disruption that occurs when companies try to keep going. Coal production has also been impacted as outbreaks spread to some mines in Shaanxi province and Ordos in Inner Mongolia was closed, according to local reports.
Steel production fell this month and inventories rose, according to an industry body, with inventories up more than 50% year-to-date. Daily production from major steelmakers is well below its recent peak in mid-September.
Sintering plants in Tangshan — China’s main steelmaking center — have cut production by 30% for 10 days from Nov. 15, according to researcher Mysteel, while factories in Jiangsu province have also considered making cuts, sources said.
In addition to the slowdown in the domestic economy, foreign demand has also decreased.
Both exports and imports fell unexpectedly last month and the leading indicator for Korean trade suggests that this may have continued this month. Korean imports from China fell 12.1% yoy in the first 20 days of the month, while Korean exports to China fell nearly 30%.
A bright spot was the stock market, which rallied this month after the government eased some Covid restrictions that gave more support to the housing market. However, the benchmark index remains shaky and stocks slid Monday. – Bloomberg