China’s industry shrinks again in January – 01/31/2024 – Market

China’s industrial activity contracted for the fourth consecutive month in January, according to an official survey released this Wednesday (31), suggesting that the sector and the Chinese economy in general are having difficulties in early 2024 to regain momentum.

The official PMI (Purchasing Managers Index) rose from 49 points in December to 49.2 in January, driven by an increase in production, but still below the 50 mark that separates growth from contraction. This result was in line with market expectations shown in a Reuters survey.

The data provides a first official picture of how the world’s second-largest economy started the new year after a shakier-than-expected post-Covid recovery.

The latest figure is also affected by the Lunar New Year, which will fall on February 10 this year, as factories may close early and send workers home before the holiday.

“Economic momentum has remained weak as deflationary pressure persists,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, saying he expects China’s central bank to cut interest rates in the first half of the year to boost domestic demand.

The new orders subindex stood at 49 points in January, contracting for the fourth month in a row, according to the survey. Weak external demand also harmed industrial activity, with the index of new export orders registering 47.2 points, in contraction territory for the tenth consecutive month.

The official non-industrial PMI, which includes services and construction, rose from 50.4 points in December to 50.7, the highest value since September last year.

The services PMI sub-index returned to growth after two months of contraction, but the construction PMI advanced at a significantly slower pace.

The Composite PMI, which includes manufacturing and services, hit a four-month high of 50.9 points in January, compared with 50.3 the previous month.

Shares on Chinese stock exchanges have 6th month of declines

Amid disappointing economic data for the market, shares in China and Hong Kong extended their declines on the last trading day of January, with highly liquid stocks recording a rare sixth consecutive month of losses.

The CSI300 index, which brings together the largest companies listed in Shanghai and Shenzhen, closed with a drop of 0.91%, while the Shanghai index fell 1.48%. Hong Kong’s Hang Seng index fell 1.39%.

Asian markets also showed caution ahead of the monetary policy decision of the American central bank, the Federal Reserve, this Wednesday, with expectations that the monetary authority will maintain interest rates at the current level.

The Chinese economy’s weak recovery and limited government stimulus have weighed on investor sentiment this month.

The Hang Seng recorded its worst January performance since 2016, falling 9.2%, with the technology and real estate sectors leading the decline. The CSI300 fell 6.3% for the month.

China unveils new stimulus measures

A state-backed real estate project in China has received the first development loan under the so-called whitelisting mechanism. Additionally, two more major Chinese cities have eased restrictions on home purchases. The information was provided by state media amid increasing concerns about the liquidation of Evergrande.

The latest measures add to a series of others implemented by the world’s second-largest economy last year to help revive the real estate sector, which accounts for a quarter of China’s gross domestic product (GDP) and has been hit by a debt crisis. unprecedented following regulatory crackdown on the sector’s high leverage.

Despite these measures, the housing market ended last year with the worst drops in new home prices in nearly nine years, casting a shadow over expectations of a broader economic recovery and renewing investor demands for stronger initiatives.

Analysts say a Hong Kong court placing property giant Evergrande Group into liquidation could worsen the demand outlook as buyers take a cautious approach due to uncertainty over the financial health of other private developers.

Two of China’s major cities, Suzhou and Shanghai, have followed Guangzhou in easing restrictions on home purchases, official media reported last Tuesday (30), in an effort to boost demand.

In another support measure, a loan worth 330 million yuan (R$227.24 million) for a state-backed venture was approved just a few working days after the government announced the “project whitelisting” mechanism. , the Securities Times reported on Wednesday.

According to the mechanism, municipal governments must provide a list of local real estate projects suitable for financial support and coordinate with local financial institutions to meet the financing needs of these projects.

The Securities Times said the city of Nanning in the Guangxi region has provided its first list of local financial companies containing 107 ventures.

The southwestern city of Chongqing also submitted a list of 314 projects, with a total of 83 billion yuan in required financing, according to the official Wechat account of the city’s housing authorities.

The implementation of financial support through this mechanism is being closely watched by a market recovering from a debt crisis since mid-2021 that resulted in unfinished homes and defaults, especially among private developers.

Many analysts believe it will take a long time for the housing market to stabilize.

The new measures come as analysts assess the impact of the court order to place Evergrande, once China’s best-selling developer, into liquidation.

By Ellen Zhang, Ryan Woo, Summer Zhen, Clare Jim, Liangping Gao, Scott Murdoch, Tom Westbrook and Megan Davies