China: Manufacturing contracts for the first time since February 2020; GDP is up 4.9%

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China’s third-quarter GDP growth slows to 4.9%

Year-on-year rise tempered by high commodity prices and Evergrande crisis

https://asia.nikkei.com/Economy/China-s-third-quarter-GDP-growth-slows-to-4.9

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TOKYO/TAIPEI — Curbs on electricity use across China are disrupting companies’ manufacturing activities, posing challenges to tech supply chains and adding risks to the country’s economic growth, which already faces uncertainty from official efforts to cool the property sector.

The power cuts are the result of several factors colliding, from surging commodity prices and recovery from COVID-19 to environmental commitments made by Chinese President Xi Jinping. Here are five things to know about China’s energy crunch.

Why are there electricity curbs?

Xi has pledged that China’s carbon emissions will peak before 2030 and the country will achieve carbon neutrality by 2060. That implies a big shift in a country where more than half of all power is generated from coal — and officials around the country are taking the targets seriously.

In August, China’s top economic planner, the National Development and Reform Commission (NDRC), called out provinces — including the industrial hubs of Jiangsu, Guangdong and Hubei — for failing to meet energy intensity targets for the first half of 2021. Energy intensity represents energy use per unit of economic output. Local authorities subsequently sent notices to companies demanding they cut electricity consumption.

But there is more going on. There have also been power shortages due to high coal and gas prices, which have spiked in recent weeks. High temperatures in areas such as Guangdong, as well as the ongoing recovery from the pandemic, have led to high electricity demand.
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Where and who are the curbs hitting?

Power cuts and curbs on electricity use have been reported in at least 20 provinces and regions. In China’s tech heartland Jiangsu Province, some manufacturers have been told to reduce their energy use for the rest of September by 10% to 30% from usual levels, sources told Nikkei Asia, while some companies received requests to stop using electricity entirely from last Sunday until the end of the month.

In Guangdong, a hub for automotive and electronics manufacturers, at least 180 Japanese companies are affected by the electricity curbs, according to Rintaro Tanaka at the Japan External Trade Organization (JETRO). Since mid-September, companies have been told to stop or reduce electricity consumption as much as five days a week, he said.

Power outages have also been scheduled in select areas of Beijing and Shanghai through Sunday, mainly targeting private residences.

What does this mean for the global supply chain?

Companies affected include key suppliers to global players such as Apple, Tesla and Microsoft. Many are relying on inventory to keep manufacturing and shipments going this week. Some are hoping to catch up on production losses during the upcoming Golden Week holidays from Oct. 1.
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How long will the crunch last?
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The situation would depend on fuel prices and government policy, according to Whitworth at Wood Mackenzie. Power demand growth is expected to slow in the second half of the year, but fuel prices could “remain elevated into the winter season and perhaps longer,” he said. The solution could be for the government to relieve financial pressure on coal and gas power stations by increasing tariffs.

There is no guarantee the current disruption is a one-off. China’s NDRC announced a policy in September, which indicated that the country would be closely managing energy consumption, said Ting Wang, senior manager at the Japan Research Institute. “There could be similar situations in the future,” she said.

How does it impact the Chinese economy?

Recent data has shown disappointing retail sales and weakness in the property market, where the government is trying to reduce borrowing by giant property developers, led by China Evergrande, and cool speculation. Hence, economists were already on alert for a slowdown. Now, they are downgrading their forecasts.

On Friday, Nomura changed its 2021 GDP growth forecast from 8.2% year on year to 7.7%, citing supply chain shocks due to the power crunch. Goldman Sachs on Tuesday revised China’s third-quarter growth forecast to 0% from the previous quarter, down from 1.3%.

https://asia.nikkei.com/content/6c182020dd8da2af287ebb64e68e58b9

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It’s official. China’s manufacturing industry is in trouble

By Jill Disis, CNN Business

Updated 1445 GMT (2245 HKT) September 30, 2

Hong Kong (CNN Business)Factories in China are struggling at a time when the world’s second largest economy has to contend with yet another concern: a growing power supply crunch. A government survey of manufacturing activity released Thursday fell to 49.6 in September, down from 50.1 in August. Any reading below 50 indicates contraction — and in this case, it was the first time the official survey showed activity shrinking since the Covid-19 pandemic began.

Factories are getting dinged by the soaring cost of energy, according to China’s National Bureau of Statistics, which added Thursday that high-energy businesses have not been prospering.

“The big picture is that industry was coming off the boil even prior to the latest power shortages,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics, in a Thursday research note.

A boom in construction and manufacturing drove much of China’s economic recovery this year, and continues to play a vital role in growth. But that work requires tons of power and thus massive amounts of coal. Power shortages began to bite in June but have worsened since then as coal prices have soared and China’s provinces have tried to meet Beijing’s targets to reduce carbon emissions. The worsening power crunch has triggered blackouts for households and forced factories to cut production — a threat to the country’s vast economy that could place even more strain on global supply chains.
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Thursday’s data wasn’t all bad. A private survey of manufacturing activity, the Caixin Purchasing Managers’ Index, rose from 49.2 to 50, indicating stable levels of activity in September compared to a decline in August. And an official index of non-manufacturing business activity rose to 53.2 from August’s 47.5, a sign that the services sector is recovering. Flagging consumer demand has been a concern in China this year. But the overall economic picture is troubling. Analysts at Nomura and Goldman Sachs trimmed their forecasts for Chinese growth in 2021 in recent days over the power shortage problems. The Goldman analysts noted this week that there’s “considerable uncertainty” headed into the final quarter of the year, given that the Chinese economy already faces risks because of the debt crisis at embattled conglomerate Evergrande.

https://edition.cnn.com/2021/09/30/economy/china-factories-growth-intl-hnk/index.html

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China manufacturing unexpectedly shrinks, services offer support

Reuters

September 30, 202111:28 AM +08

  • Summary
  • Sept official manufacturing PMI at 49.6 vs 50.1 in Aug
  • Sept official services PMI at 53.2 vs 47.5 in Aug
  • Sept official composite PMI at 51.7 vs 48.9 in Aug

BEIJING, Sept 30 (Reuters) – China’s factory activity unexpectedly shrank in September due to wider curbs on electricity use and elevated input prices, while services returned to expansion as COVID-19 outbreaks receded, offering some relief to the world’s second-biggest economy.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.6 in September versus 50.1 in August, data from the National Bureau of Statistics (NBS) showed on Thursday, slipping into contraction for the first time since February 2020.

Analysts in a Reuters poll had expected the index to remain steady at 50.1, unchanged from the previous month. The 50-point mark separates growth from contraction.

China’s economy rapidly recovered from a pandemic-induced slump last year, but momentum has weakened in recent months, with its sprawling manufacturing sector hit by rising costs, production bottlenecks and electricity rationing.

Rising COVID-19 cases in tens of cities over the summer also disrupted the manufacturing and the services sectors, though the latter is starting to bounce back as the outbreaks receded.

A sub-index for factory output contracted in September for the first time since February last year, dragged down by a pullback in high-energy consuming industries, such as plantsthat process metalsand oil products. The gauge stood at 49.6 versus 50.1 a month earlier.

“In September, due to factors such as low volumes of business at high energy-consuming industries, the manufacturing PMI fell below the critical point,” said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.
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“The two indexes of high energy-consuming industries …are both lower than 45.0, indicating a significant drop in supply and demand.”

GROWTH OUTLOOK

The sudden contraction in factory activity will further weigh on an economy already hit by curbs on its property and tech sectors and facing many growth downgrades by private-sector economists.
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Employees work on the production line of American infant product and toy manufacturer Kids II Inc. at a factory in Jiujiang, Jiangxi province, China June 22, 2021. REUTERS/Gabriel Crossley

Employees work on the production line of American infant product and toy manufacturer Kids II Inc. at a factory in Jiujiang, Jiangxi province, China June 22, 2021. REUTERS/Gabriel Crossley

  • Summary
  • Sept official manufacturing PMI at 49.6 vs 50.1 in Aug
  • Sept official services PMI at 53.2 vs 47.5 in Aug
  • Sept official composite PMI at 51.7 vs 48.9 in Aug

BEIJING, Sept 30 (Reuters) – China’s factory activity unexpectedly shrank in September due to wider curbs on electricity use and elevated input prices, while services returned to expansion as COVID-19 outbreaks receded, offering some relief to the world’s second-biggest economy.

The official manufacturing Purchasing Manager’s Index (PMI) was at 49.6 in September versus 50.1 in August, data from the National Bureau of Statistics (NBS) showed on Thursday, slipping into contraction for the first time since February 2020.

Analysts in a Reuters poll had expected the index to remain steady at 50.1, unchanged from the previous month. The 50-point mark separates growth from contraction.

China’s economy rapidly recovered from a pandemic-induced slump last year, but momentum has weakened in recent months, with its sprawling manufacturing sector hit by rising costs, production bottlenecks and electricity rationing.

Rising COVID-19 cases in tens of cities over the summer also disrupted the manufacturing and the services sectors, though the latter is starting to bounce back as the outbreaks receded.

A sub-index for factory output contracted in September for the first time since February last year, dragged down by a pullback in high-energy consuming industries, such as plantsthat process metalsand oil products. The gauge stood at 49.6 versus 50.1 a month earlier.

“In September, due to factors such as low volumes of business at high energy-consuming industries, the manufacturing PMI fell below the critical point,” said Zhao Qinghe, a senior NBS statistician, in an accompanying statement

“The two indexes of high energy-consuming industries …are both lower than 45.0, indicating a significant drop in supply and demand.”

GROWTH OUTLOOK

The sudden contraction in factory activity will further weigh on an economy already hit by curbs on its property and tech sectors and facing many growth downgrades by private-sector economists.
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“(Chinese) economic growth in Q4 will likely slow further without a change of government policies, and the pace of slowdown may pick up,” said Zhiwei Zhang, Shenzhen-based chief economist at Pinpoint Asset Management, after the PMI data was released.

“The big question is whether the government’s monetary and fiscal policies will become more supportive now or if the government will wait till the year-end to change the policies.”


https://www.reuters.com/business/china-factory-activity-unexpectedly-shrinks-services-recover-2021-09-30/?taid=61552bbbc9cd470001336685&utm_campaign=trueAnthem:+Trending+Content&utm_medium=trueAnthem&utm_source=twitter

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China power crunch slams factories as coal lobby warns woes could stay until winter

By Gabriel Crossley and Shivani Singh

October 1, 20211:52 AM +08

SHENYANG, China, Sept 30 (Reuters) – Small firms caught in China’s prolonged energy crunch are turning to diesel generators, or simply shutting shop, as coal industry officials voiced fears about stockpiles ahead of winter and manufacturing shrank in the world’s no. 2 economy.

Beijing is scrambling to deliver more coal to utilities to restore supply as the northeast grapples with its worst power outages in years, particularly the three provinces of Liaoning, Heilongjiang and Jilin, home to nearly 100 million people.

Gao Lai, who runs an industrial laundry service in Shenyang, the capital of Liaoning, said he was losing money after the power crunch forced him to hire a diesel generator.

“We can afford it for just four days, but if it’s for longer, then the costs are too much, so we can’t survive,” he told Reuters.

“We are willing to make it work because the country needs it, but if (power curbs continue) in the long run, we have to think of a way out.”

The curbs were triggered by shortages of coal, which fuels about two-thirds of China’s power generation.

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