China is facing an economic rout.
The world’s second-largest economy suffers from declining exports, weak domestic demand, and a historic real estate crisis. And now China’s manufacturing activity has contracted for a fifth straight month in August, data shows.
The trend is keeping policymakers on their toes as they scramble to shore up economic growth amidst tepid demand.
New orders reverted to expansion for the first time in five months. Factory owners indicated that producer prices were improving. However, the vast services sector continued its downward trend, Reuters reports.
The official purchasing managers’ index (PMI) rose slightly to 49.7 from 49.3 in July, the National Bureau of Statistics said. That’s below the 50-point level that separates contraction from expansion.
Despite the rise, the reading was above a forecast of 49.4. This suggests conditions did not materially worsen, even though the survey showed factories under persistent pressure.
Higher interest rates and inflation in the U.S., Europe, and other major export markets are weakening demand for Chinese goods. The new export orders sub-index contracted for a sixth straight month. This adds pressure on policymakers to boost domestic demand as the global economy continues to slow.
![Xi Jinping](https://s3.amazonaws.com/editorial.benzinga.com/wp-content/uploads/2023/08/16042007/shutterstock_2258651431.jpg)
China Hopes To Boost Investor Confidence
The Xi Jinping-led country is implementing various strategies to bolster waning investor confidence and prevent the real estate crisis from impacting other sectors and economies.
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The Chinese Ministry of Finance recently reduced its “stamp duty” on securities transactions to 0.05%, an effort to spur market activity and boost sentiment.
International investors remain skeptical, as indicated by record foreign fund outflows for the month. Despite the Chinese government encouraging larger financial institutions to increase stock investments and the China Securities Regulatory Commission (CSRC) approving the launch of 37 retail funds aimed at supporting the market, traders view the measures as cosmetic changes that do not address the root cause of the economic slowdown.
Kenny Wen, KGI’s head of investment strategy based in Hong Kong, told South China Morning Post that “these policies will only help in the short term, as investors are still concerned about China’s fundamental problems.”
The Road Ahead: The introduction of new policies, such as the stamp duty reduction, may have provided a momentary shot in the arm for China’s stock market. Still, traders view it as another Band-Aid on a deeper wound. Policymakers are grappling with structural problems like a weakening property market, high youth unemployment, and insufficient domestic demand.
As Bruce Pang, chief economist at Jones Lang Lasalle told Reuters, “the actual implementation and effectiveness of policy support will be the key indicator to watch.”
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