Why is China’s economic outlook raising alarms after August’s non-manufacturing PMI plunge?

Chinese authorities blame weak economic sentiment on Delta outbreaks and floods, but analysts say there’s more to the picture

China’s official composite purchasing managers’ index fell to the lowest point since coronavirus lockdowns began in February 2020 – marking a rare dip into the contraction range

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There is an emerging consensus among analysts who believe that the peak of China’s post-coronavirus economic momentum is already behind it. Photo: AFP

Published: 8:15pm, 31 Aug 2021Updated: 10:59pm, 31 Aug 2021

Temporary shocks caused by Delta variant outbreaks may have been to blame for depressing China’s economic sentiments in the past month, but economists warn that the latest falling purchasing managers’ indices signal further problems in the economy.

And they are calling for more loosening of liquidity and increased fiscal spending.

Meanwhile, there is an emerging consensus among analysts who believe that the peak of China’s post-coronavirus economic momentum is already behind it. Banks, too, appear to see the writing on the wall and have begun to slash their economic growth forecasts for China for the year, while Beijing is also taking steps that portend the headwinds facing the nation’s economy in the long run.

China’s official composite purchasing managers’ index (PMI), which gauges sentiment in both manufacturing and the services industry, dropped sharply to 48.9 in August from 52.4 in July, data from the National Bureau of Statistics (NBS) showed on Tuesday. A reading above 50 indicates growth in sector activity, while a reading below the watershed mark represents contraction. The lower the reading is below 50, the faster the pace of contraction.

The reading was the lowest since the index hit an all-time low of 29.6 in February 2020 when China first imposed coronavirus lockdowns, making August just the second month that the index has dipped into the contraction range since the data was first made available in 2017.