There is still no bottom for the Chinese economy

Some familiar problems haunted the Chinese economy in August: power shortages, an implosion of the real estate market and collateral damage from zero-Covid policies. The latter two are fundamentally political as well as economic, but the will to tackle them so far seems to be lacking. This makes a further decline in Chinese growth likely this fall.

China’s official August Purchasing Managers’ Indexes, released on Wednesday, were poor but not catastrophic. Factory activity weakened again, but less markedly than in July. The new orders sub-index rose slightly while the production index remained stable at 49.8, likely reflecting the impact of widespread hydropower shortages. Meanwhile, construction and services PMIs fell, although both remained above the 50 point mark separating expansion from contraction.