Shortages and spiraling costs hit China’s economy hard

The steam engine of China’s economy contracted unexpectedly last month, indicating that the global recovery from the Covd-19 crisis is faltering.

China’s manufacturing purchasing managers index, a closely watched indicator of the health of the country’s economy, hit 49.6 in September, below the 50.1 forecast by analysts.

China, like much of the rest of the world, faces energy and raw material shortages caused by disrupted supply chains amid a resurgence in global demand as economies regain their strength before the pandemic.

Stricter emissions standards in the country have led to a shortage of coal, a key material used in China’s manufacturing sector, which means factories are cutting production.

This toxic combination has caused raw material prices to skyrocket, making business less profitable for Chinese manufacturers and prompting them to curb production.

Zhao Qinghe, senior statistician at the National Bureau of Statistics, who released the data, said, “In September, due to factors such as low volumes of activity in energy-intensive industries, the manufacturing PMI was fell below the critical point.

A reading below 50 indicates that a majority of companies reported that activity decreased during the investigation period.

“(Chinese) economic growth in the fourth quarter is likely to slow further without a change in government policies, and the pace of the slowdown may accelerate,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

The findings come as Beijing triggered a liquidity crisis at heavily indebted Chinese real estate developer Evergrande.

Trade activity in the UK grew at its fastest pace since 1998 in May as the economy emerged from lockdown, new data showed today.

Fears over the collapse of the besieged developer have both rocked global financial markets and raised expectations that the Chinese economy is heading into a further downturn.

Evergrande has about $ 305 billion in liabilities. He recently missed an interest payment to foreign bondholders and sold his stake in a Chinese commercial bank to raise funds to pay his creditors.

Chinese authorities have stepped up their crackdown on the country’s heavily indebted real estate sector, which has been backed by cheap money and loose credit checks on Beijing’s state-owned banks.

The country’s service industry advanced in September, posting a reading of 53.2, down from 47.5 in August.

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