Factory activity in China has slowed more than anticipated in May, indicating additional strain on an economy already grappling with a prolonged crisis in the property sector, according to an official survey released on Friday.
The manufacturing purchasing managers index from the China Federation of Logistics and Purchasing dipped to 49.5 from 50.4 in April on a scale up to 100 where 50 signifies the divide between expansion and contraction. The primary cause for the slowdown was a decrease in output. A decline in new orders and export orders indicates weak demand.
Analysts had predicted the manufacturing PMI to be just above 50, or still in the growth zone after the economy expanded at a faster than expected annual rate of 5.3% in the first quarter of the year. However, uncertainties over access to the US market have been escalating as President Joe Biden and his re-election rival, former President Donald Trump, both reinforce their support for maintaining or increasing high tariffs on imports from China.
“The latter (new orders and export orders) may point to near-term declines in exports, but it is more likely to reflect sentiment effects due to Biden’s new tariffs,” Zichun Huang of Capital Economics said in a report. China recently decided to relax rules on the amount of cash needed upfront for a mortgage and made it cheaper to borrow money for some home loans, in an attempt to steady the housing market.
Property prices have been dropping, building work has come to a standstill and various developers have gone bust after being unable to pay back their debts, following the government clamping down on too much borrowing a few years ago. Fridays survey showed that construction slowed down a bit.
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Families in China have invested large parts of their savings into property, so the downturn in this market has had a disastrous affect. People losing their jobs because of the pandemic and other things, like the governments tighter controls on businesses involved with technology, have also had an impact on spending.
Fnancial experts say that long-term changes are needed to make shoppers feel more confident about spending their money and to keep the economy growing in the long term.
Earlier this week, the International Monetary Fund said that it thinks China's economy will grow this year to 5%, but warned that more needs to be done to make the economy rely less on selling products to other countries and more on things like building work, as the population of the country is getting older.
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