Covid uptick, Heatwave cool Chinese economy

China’s economy continued to stutter in August thanks to a terrible combination of renewed Covid infections across a host of cities, towns and regions; tightened mobility restrictions, and power rationing as a result of the worst heatwaves in decades.

The drought and Covid have made for a double whammy in the southwest where the huge Yangtze River is drying up (along with freshwater sources and dams) and now the huge city of Chengdu in drought-ravaged Sichuan has been shut by Covid restrictions and testing.

Major ports and manufacturing and processing centres like Dalian in the north, and Taijin, southeast of Beijing, have also seen movement restriction, lockdowns and other bans from the central and local governments because of more isolated cases of Covid. Shenzhen in the southeast has also seen restrictions and testing imposed.

Given that happened this week and missed the official activity surveys of factories and services, the readings in a month time will again be weak, like August’s were.

Factory activity contracted less than expected in August, shrinking for the second straight month, according to China’s official survey from the National Bureau of Statistics.

The official manufacturing activity index edged up to 49.4 in August, from 49.0 in July but that was still a contractionary reading. It was a bit stronger than market forecasts of 49.2.

The official NBS Non-Manufacturing activity survey fell to a three-month low of 52.6 in August from 53.8 a month earlier. That was still a solid positive reading but the falling trend is weaker than in manufacturing.

And the NBS survey also fell to a three-month low of 51.7 in August from 52.5 in July.

That’s because factory activity contracted for the second straight month while the services sector expanded at the slowest rate for three months.