This month, China’s economy came to a halt as the country battled a surge in coronavirus cases and dealt with the ongoing shipping crisis.
In August, an official survey of manufacturing activity dropped to 50.1 from 50.4 in July. That was just above the 50-point mark, indicating expansion rather than contraction, but it was still the slowest growth rate since the pandemic began. A private survey of factory activity released on Wednesday revealed similar warning signs. In August, the Caixin manufacturing Purchasing Managers’ Index fell to 49.2, the lowest level since April 2020.
According to the official survey, service industries, which now account for a larger share of the world’s second largest economy, fared even worse. The non-manufacturing Purchasing Managers’ Index fell to 47.5 in August from 53.3 in July, marking the first drop since February 2020.
China’s economy fared much better than many of its peers in the early stages of the pandemic, growing last year while others shrank. However, the Delta variant’s fallout, as well as China’s zero-Covid policy, has wreaked havoc in recent weeks.
The country’s worst coronavirus outbreak in a year prompted authorities to take drastic measures to prevent new infections, including city lockdowns, flight cancellations, and trade suspensions. Delta appears to have been contained as a result of the aggressive and uncompromising strategy — at the expense of economic activity.
In a Tuesday research note, Julian Evans-Pritchard, senior China economist at Capital Economics, wrote, “The latest surveys suggest that China’s economy contracted last month as virus disruptions weighed heavily on services activity.” He went on to say that the drop in the non-manufacturing PMI was entirely due to disruption in the services sector, with “movement restrictions reimposed and consumers becoming more cautious amid the renewed virus flare-up.”
The situation has gotten worse due to ongoing issues with the global supply chain. Supply chains have been further snarled by container shortages, coronavirus-related factory shutdowns in Vietnam, and the lingering effects of port closures in China for months as manufacturing picks up and consumer demand explodes, and supply chains have been further snarled by container shortages, coronavirus-related factory shutdowns in Vietnam, and the lingering effects of port closures in China.
After a dock worker tested positive for Covid-19, a terminal at the Ningbo-Zhoushan Port south of Shanghai was closed for weeks, adding to a backlog caused by an earlier shutdown in southern China, which is home to some of the world’s busiest container ports.
