Get ready for more gloomy news next week on the health of the Chinese economy with the usual start-of-month surveys of manufacturing and service sector activity likely to reveal no improvement from April’s sharp contraction.
One decision this week from the Chinese government tells us just how serious the slump in the economy is – the announcement that airlines will be subsidised for two months to prevent some of them collapsing.
The subsidies to Chinese airlines will run from May 21 to July 20 to help them weather the coronavirus-induced downturn and higher oil prices, according to the country’s finance ministry.
Domestic air traffic has slumped because of lockdowns in Shanghai and surrounding cities. Shanghai-based China Eastern said passenger numbers sank 90.7% in April from a year earlier.
And Shanghai International Airport saw passenger numbers down 98.9% in April.
What is important about these subsidies to airlines that there has been no similar action to help the tottering property sector which is a far more important part of the Chinese economy, even as it continues to implode.
Higher fuel and energy prices as well as the weakening yuan are adding to the problems by boosting cost pressures throughout the weakening economy and lifting inflation generally.
At the moment it would be fair to say that China has stumbled into a bout of severe stagflation that could cripple economic growth for the rest of this year.
Unless there is a big rebound in the third and 4th quarters, GDP this year will fall short of the 5.5% target.
Tuesday sees the release the official survey of activity across the economy, while Wednesday sees the release of the private survey of manufacturing activity.
Both will make for miserable reading. The official survey showed manufacturing activity in April fell to a reading of 47.4, the lowest since the early days of the pandemic in 2020 while service sector activity slumped even further, to a reading of 41.9 which was also the lowest since the pandemic.
The private survey of manufacturing activity in small to medium businesses dropped to 46, again the lowest for more than two years.
All three point to the economy slowing sharply in April and May is likely to see more of the same, even if there’s a small rise in some parts of the surveys as parts infected regions and cities (such as Shanghai) have slowly re-opened.
Shanghai is due to start re-opening from Wednesday, June 1 and schools will return six days later. But the re-openings will be staged in batches and at a very cautious pace.
Shanghai on Thursday said that it had 338 new locally transmitted infections for May 25, the lowest since mid-March and a far cry from tens of thousands at April’s peak of the current outbreak.
Other cities not under lockdown but still hit by stringent COVID measures, such as Beijing, have also struggled to keep their local economies upright.
Wednesday’s grim view of the health of the world’s second-biggest economy from Premier Li Keqiang confirmed that that economic difficulties in some aspects were even bigger than in 2020 when the country was first hit by the COVID-19 outbreak.
Many private-sector economists expect gross domestic product to contract in April-June from a year earlier after the March quarter’s 4.8% growth.
While Li said China will strive to achieve “reasonable” GDP growth in the second quarter, no one believes it. Wednesday’s conference was more a Communist Party rally designed to brief and keep morale high among the country’s key officials.
The state-owned Global Times reported (more gushed) that the conference was huge:
“China’s State Council, the cabinet, on Wednesday held what has been seen as an unprecedented national video teleconference on stabilizing the economy with reportedly upwards of 100,000 participants, including officials of various levels, stressing the need to better implement measures to safeguard market entities, employment, people’s livelihood and keep the economy operating in a reasonable range.
“Coming as activity in the world’s second-largest economy seems grimmer than expected, the gathering, on the heels of several momentum pro-growth-themed meetings, indicates an imperative to bring the economy back on track, experts said, expecting local governments to play a more decisive and effective part in implementing stabilization policies.
So activity in the economy is “grimmer than expected” which is a considerable admission by a state-owned media outlet.
It’s therefore no wonder that the People’s Bank of China again said on Thursday it would promote more credit for smaller firms and urged financial institutions to prioritise lending to central and western regions, as well as areas and sectors hammered by COVID outbreaks. It has promised similar action several times in the past two months.
The airline subsidies are not opened ended and are restricted.
Cash support will only be provided when average daily numbers of domestic flights each week are lower or equal to 4,500 flights and when the average load factors are lower than 75%. The maximum grant would be 24,000 yuan ($US3,574) per hour to the loss-making flights, the government said.
Road freight transportation and express delivery from distribution centres last week were both stronger than a month earlier but still down sharply on this time last year, Nomura Global Economics said this week.
Reuters reported on Thursday that a growing list of local and foreign companies were experiencing slow sales because of impact of the Covid lockdowns on consumer and corporate demand.
Lenovo, the world’s largest PC maker, reported on Thursday its slowest quarterly revenue growth for seven quarters as demand for its personal computers fell after two years of pandemic-driven demand.
Tencent, China’s most valuable company, posted its worst quarterly performance since it went public in 2004, blaming cuts in advertising spending by consumer, e-commerce and travel businesses. Tencent reported a 30% slump in ad revenues for the quarter.
Apple supplier Foxconn warned that smartphone demand was slipping in China while sales of luxury goods are slowing as consumers are forced to remain at home in big cities like Shanghai and Beijing.
And while car production has improved this month with more plants slowly re-opening, it is still very weak.
The China Passenger Car Association said on Thursday that national vehicle sales rose 34% in the first three weeks of May compared with the corresponding period in April (Sales were down 37% in the first three months of April).
But, with measures to control COVID outbreaks depressing incomes, the sales volume was 16% still lower than 12 months earlier, the industry association cautioned.
Western analysts and investors will be looking at the final figures when released in mid-June to see if sales of so-called New Energy Vehicles held up last month as they did in April’s slide. That was the only positive from China’s very weak data for April.