Why China’s factory output is unlikely to break free anytime soon

Pressure is mounting on Beijing to announce a fresh round of stimulus package to boost its economy amid patchy recovery in the all-important manufacturing sector which is weighing on the overall economy. Challenges for China’s manufacturing sector are likely to stay with slowing demand from the West and US. For the third straight month, China’s factory output remained in the red. Official data showed that the manufacturing purchasing managers’ index (PMI) — a key measure of factory output — stood at 49.0 in June. Though it is an increase from 48.8 recorded in May, it is below the 50 mark level. A reading below 50 is considered contraction.

China’s economic growth has significantly slowed down. Though the Chinese economy grew 4.5 per cent in the January to March quarter of 2023, analysts said that the growth momentum may be tad slower in the second quarter despite Chinese Premier Li Qiang’s optimism that the country’s growth rate was on track. For the full year, Beijing has projected a growth target of around 5 per cent.

A weak consumer spending with an ageing population besides rising debt of the local governments at home have only added to the problem. Nikkei Asia, however, said that under Chinese Premier Xi Jinping’s top-down, state-first economic policies, these problems are set to persist and weigh on the country’s long-term development prospects.

China’s local news organisation said that while the country’s economy was performing well, Beijing would need to take measures to “translate foreign companies’ confidence into actual growth and further propel its upward trajectory.” It added that “further opening-up seems to be the only answer.”

“There is no denying that due to the complicated and grim external environment and sluggish global trade and investment, the foundation and conditions for China’s economic recovery may not be as solid and favourable as expected,” it said.

At a time when the world was battling a global economic crisis in 2008-09, China steered through on the back of expanded government spendings. But history may not repeat itself as the using large-scale stimulus to boost demand has led to massive oversupply in property and industry, and surging debt levels among local governments, Bloomberg noted. “That’s sparked a discussion about whether China is headed for a Japan-style malaise after 30 years of unprecedented economic growth,” it said.

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