China’s manufacturing Purchasing Managers’ Index (PMI) continued to drop for the fifth consecutive month in August on worries of a weak economy, a resurgence of COVID-19 and severe floods in Central China’s Henan province. In August, manufacturing PMI fell to 50.1, down by 0.3 basis points from 50.4 in July, according to China’s National Bureau of Statistics (NBS).
But a PMI above 50 still indicates an expansionary mode, which had been maintained for the last 18 months.
In August, China’s services industry contracted for the first time since February 2020 as the non-manufacturing PMI fell to 47.5, down from 53.3 in July.
According to the CFLP Steel Logistics Professional Committee (CSLPC), the PMI for China’s steel industry continued to drop for the third consecutive month, contracting by 1.3 basis points to 41.8. This is the lowest since March 2020. Both steel demand and supply shrunk in August.
The momentum of recovery weakened due to high raw material prices, slowing exports, tighter measures to tame property prices and a campaign to reduce the country’s carbon emissions. Steel mills are directed to cut production to improve air quality and reduce emissions.
The industry activity was also dampened by the supply chain bottlenecks and port congestions in August. The Meishan container terminal of China’s Ningbo port was shut for two weeks in mid-August. This elevated shipping costs further and led to a shortage of container vessels.
After new restrictions to contain the Delta variant of COVID-19, cases dwindled to zero for the third successive day on August 30. The National Health Commission was of opinion that the risk of a nationwide outbreak has been contained.
Following slower factory and service activities, a likelihood of more near-term policy support to boost growth has emerged. China’s central bank could reduce the amount of cash banks hold as reserves to increase liquidity.