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China's economy has been wobbling in the worse energy crisis it's had since it's shift to faux capitalism. Chinese factory acivity contracted in September for the first time since the pandemic began.

China Factory

This is just the latest sign of deceleration from by its attempt to manipulate commodity prices in it's trade war with Australia with the end result being crushed by energy shortages. This has seen a rise in costs wmainly caused by a sharp increase in the prices of energy, industrial metals and electronic raw materials. The drop in the official manufacturing purchasing managers’ index below the 50-mark, which signals a decline in output, shows the damage a widespread electricity crunch is having on growth.

The official manufacturing Purchasing Manager's Index (PMI) was at 49.6 in September versus 50.1 in August, data from the National Bureau of Statistics (NBS) , slipping into contraction for the first time since February 2020. Analysts in a Reuters poll had expected the index to remain steady at 50.1, unchanged from the previous month.

China NBS Manufacturing PMI

The 50-point mark separates growth from contraction.

A sub-index for factory output contracted in September for the first time since February last year, dragged down by a pullback in high-energy consuming industries, such as plants that process metals and oil products. The gauge stood at 49.6 versus 50.1 a month earlier.

"In September, due to factors such as low volumes of business at high energy-consuming industries, the manufacturing PMI fell below the critical point," said Zhao Qinghe, a senior NBS statistician, in an accompanying statement. "The two indexes of high energy-consuming industries ...are both lower than 45.0, indicating a significant drop in supply and demand."

  • Raw material costs rose to 63.5 in September from 61.3 a month earlier,
  • New orders came in at 49.3 compared with 49.6 in August, shrinking for the second straight month.
  • Employment remained in contraction, at 47.8 versus 47.0 a month earlier.

The problem for the economy is that manufacturing and property investment have been the main drivers of growth since the pandemic hit. The Evergrande credit crisis and protests around it highlight the impact on the Chinese. Consumption growth remains relatively weak with households still cautious about travel and eating out with the delta variations. China has also been dealing with ongoing small-scale coronavirus outbreaks in the southeastern province of Fujian and Heilongjiang province in the country's northeast.

Electricity shortages have caused power cuts across China combined with property curbs are ‘a double whammy on the key drivers of growth this year,’ said Bo Zhuang, China economist at Loomis Sayles Investments Asia. ‘A further growth slowdown is inevitable.’”

Via: TCN, Bloomberg

From the Traders Community Research Desk

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