China’s major economic pillars were all shaken in July, suggesting that the country’s road to recovery could be even longer.

China’s manufacturing activity unexpectedly dropped last month, due to weak demand and the blockade orders to prevent Covid-19. China’s National Bureau of Statistics (NBS) on July 31 said the country’s purchasing managers’ index (PMI) was only 49 in July, lower than 50.2 in June. PMI below 50 shows production shrinking.

Along with that, home sales – which recovered in May and June – fell again in July due to a wave of boycotting bank loan payments for slow-moving projects.

Sales of the country’s top 100 real estate firms fell 39.7% in July from the same period last year, and fell 28.6 percent from June to $77.6 billion, according to the supplier. China Real Estate Information real estate data.

The manufacturing and real estate sectors account for a third of China’s economy. So these figures suggest that the road to pre-pandemic recovery is still long. Although local governments have been less confused in controlling Covid-19, Beijing has reaffirmed that it will not change its stance on fighting the epidemic in the near future.

“Surveys show China’s economic recovery slowed in July as momentum from reopening fades,” said Julian Evans-Pritchard, senior China economist at Capital Economics. , comment. He forecasts that the economy’s performance will remain weak in the coming quarters.

Car seat assembly line at Yanfeng Adient factory in Shanghai, China.  Photo: Reuters

Car seat assembly line at Yanfeng Adient factory in Shanghai, China. Photo: Reuters

China’s manufacturing hubs, including Shanghai, rebounded strongly in June from the widespread lockdown. However, the upward momentum has shown signs of slowing amid a resurgence of the virus, weak domestic and global demand, as well as a dismal property market.

China’s second-quarter GDP grew by 0.4% – the weakest in more than two years, showing the magnitude of the impact of the blockades. The results led officials to concede a growth target of around 5.5% this year is out of reach, unless there is a major stimulus.

“The foundation of the economic recovery still needs to be strengthened,” said Zhao Qinghe, senior statistician at NBS. According to him, insufficient market demand and the weakness of energy-intensive industries are particularly worrying factors.

Only 10 of the 21 manufacturing industries surveyed by NBS showed growth in July. The export orders sub-index continued to decline for the 15th consecutive month.

This index is likely to continue to plunge after the US Federal Reserve (Fed) late last month raised interest rates by 0.75 percentage points to combat inflation. The tightening of currencies by the US and other major economies threatens to curb overseas demand for Chinese-made goods.

The service sector in general is still expanding. The non-manufacturing PMI came in at 53.8 in July, though down from 54.7 in June. Strict restrictions such as requiring PCR test results for public transport or restaurant entry in many city, as well as the isolation for people traveling from one city to another, continue to inhibit consumer demand.

In July, China recorded sporadic Covid-19 outbreaks. Even so, the lockdown has largely been limited to less developed parts of the country, such as Gansu and Guangxi provinces.

Meanwhile, the real estate market began to weaken from the end of last year. Recently, the situation has worsened due to the wave of stopping home loan payments with projects that are behind schedule.

The boycott wave started at the end of June at an Evergrande project in Jingdezhen, Jiangxi province. After that, customers of 320 projects across the country also joined, according to GitHub data as of July 29.

Weekly data compiled by CRIC for 30 cities identified as severely impacted by the wave of payments boycotts, shows that new home sales fell 12% for the week ended July 10 compared with previous week. The price then dropped another 41% in the week ending July 17.

The Chinese government believes that local governments should be responsible for dealing with real estate problems in their respective regions. Localities have devised a series of measures. Dozens of cities have given debt graces and reduced interest rates. Some subsidies are entirely cash. A bailout fund for real estate developers was also set up. Some localities also have plans to acquire land for projects that are facing difficulties.

Even so, Song Hongwei, research director at Tongce Research Institute, which tracks and analyzes China’s real estate market, said “the sector will still be volatile if the liquidity situation of developers declines. development does not subside”.