Confidence Is Weakening

According to the National Bureau of Statistics, the last months saw a decline in factory activity in China as a result of recurrent Covid outbreaks. According to the report, the official purchasing managers' index for manufacturing decreased from 50.1 in September to 49.2 in November and 48.0 in December.

"The market is in urgent need of policies to promote employment and stabilize domestic demand. Beijing should further coordinate fiscal and monetary policies to expand domestic demand and boost incomes of the poorer parts of the population," Wang Zhe, senior economist at Caixin Insight Group

  • Readings under 50 signify a decline in factory activity, while readings over 50 show growth
  • The index polls companies about their operational circumstances. Six out of the first ten months of the year saw the index fall below the 50-point mark

Tentative Relaunch

In November, Chinese officials unveiled a flurry of policies to support the economy, including a reduction in the reserve requirement ratio and COVID-19 fine-tuning measures, while easing lending restrictions to save the real estate market.

  • The securities regulator this week relaxed a restriction on listed companies' ability to refinance their equity, the latest assistance gesture for the cash-strapped real estate industry
  • Still, analysts believe that these steps alone would not be sufficient to significantly increase economic activity and that much would depend on China's response to the coronavirus outbreak

"Recent policy support is not enough to stem the housing downturn, the deepening global downturn will continue to weigh on exporters, and weak credit demand is constraining the PBOC's (central bank's) ability to provide more policy support in the near-term," Yue of Capital Economics

Softening For now

Even as its daily case count approaches record highs, China is loosening some coronavirus restrictions in response to nationwide protests that were sparked by the world's strictest restrictions.

  • While still reporting new illnesses, a number of cities in the second-largest economy are now finally lifting district lockdowns and allowing businesses to reopen
  • Expectations have grown that China, which is still working to limit infections, may consider reopening at some time in 2023 once it improves immunisation rates among its older population.

China's stringent containment policies have slowed down domestic economic growth this year and spread to foreign nations through disruptions in supply chains.


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