Delta Wreaks Havoc on Chinese Economy

By Glenn Dyer | More Articles by Glenn Dyer

Covid Delta hit Chinese economic activity hard in August, according to the final data drop for the month from the National Bureau of Statistics on Wednesday.

Production, investment and retail sales all took hits last month, a more accurate measure of what is happening in the Chinese economy than the solid exports and imports data released last week.

Wednesday’s data releases confirm the start of month activity readings that suggested the economy has tumbled into contraction across its manufacturing and the larger and more important service sectors.

The weak data was the outcome of a series of Covid Delta outbreaks saw the government clamps down hard with mass lockdowns, testing and restrictions on the movement of people (especially tourists) and goods (especially ports).

The continuing shortage of semiconductors and associated computer products is also hurting production of some vehicles, computers and consumer electronics – both in the domestic and export markets.

But the government’s attempts to slow carbon emissions and put a limit on the expansion of polluting industries such as steel, copper and other metals, also hurt the economy in August.

It was a self-inflicted hit that did nothing for the economy.

A slide in crude steel production for a third month in a row was a perfect example of the negative impact the government crackdown is having.

China’s National Bureau of Statistics said 83.24 million tonnes of crude steel was produced last month, down 4.1% from July and well down on output of 94.85 million tonnes in August 2020. It was also down 16% from the all-time high monthly figure of 99.5 million tonnes in May.

That was the lowest monthly output since March 2020, not accounting for January and February data which the NBS combines (because of the variable timing of the Lunar New Year).

In the first eight months of the year, China produced 733.02 million tonnes of crude steel, still up 5.3% from the January-August period in 2020.

China’s output of aluminium fell 3% to 3.1 million tonnes in August from July, but was still up a touch from August 2020.

The fall was due to the central government ordering output cuts in Xinjiang province to punish producers for what it called illegal production (and extra emissions), as well as orders to slow output during a series of power shortages in the month, as well as curbing carbon emissions.

China’s August production data on Wednesday showed output of 10 nonferrous metals – including copper, aluminium, lead, zinc and nickel – was 5.3 million tonnes last month, its lowest monthly total in a year.

That was down 1.3% from 5.367 million tonnes in July but up 0.4% year-on-year.  Other metals in this group are tin, antimony, mercury, magnesium and titanium.

The Covid outbreaks had no impact on steel or the production of other metals – it was concentrated in retailing.

After a couple of weeks of no reports of outbreaks, Covid Delta infections appeared in Fujian province, South of Shanghai last weekend and continue.

As a result, retail sales growth slowed to just 2.5% in August, from 8.5% in July and 17% (made to look better by the low comparative base in the same month of 2020).

August 2020 saw growth of just 0.5%, so the 2.5% rise this year was weak, especially when economists had forecast an 11.5% rise.

It was the weakest rise in retail sales since August 2020, as consumption weakened during the latest COVID-19 outbreaks in some areas. Notable falls were seen in cars and other vehicles, home appliances, clothing and telecoms.

Slower growth was recorded in jewellery and furniture, while sales of building materials grew faster than in July.

Falling production of cars (but not New Energy Vehicles) was one example of a slide in output that saw Chinese industrial production grow 5.3% in August, down from 6.4% in July and forecasts for a rise of 5.8%.

August saw the weakest increase in industrial output since July 2020. The fall was blamed on Covid Delta control measures, persistent semiconductor shortages, and central government measures to control high pollution, with production slowing for both manufacturing and utilities.

Production fell for textiles, ferrous metals (especially steel); and slowed for transport equipment (motor vehicles); machinery and chemicals. By products, falls were seen in production of cement For the first eight months of the year, industrial production grew 13.1

Investment also slowed noticeably to a rate for the eight months of 8.9%, from 10.3% in the seven months to July and forecasts of 9%.

Investment slowed in both public and private sectors amid the latest surge of COVID-19 cases in some regions.

And house price growth in china’s 70 biggest cities slowed to 4.2% last month from 4.6% in July. This was the weakest rise in new home prices since January, as government cooling measures were enough to offset strong property demand.

On a monthly basis, new home prices went up by 0.2% in August, the smallest monthly rise since December 2020 and followed a 0.3% rise in July.

The country’s property investment in August rose 0.3% from a year ago, the slowest growth rate in 18 months.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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