China’s economy worsened in July, Beige Book says

CHINA’S economy weakened further in July amid a resurgence in Covid outbreaks, China Beige Book International said, warning that market optimism about a rebound is misplaced.

Factory output and new orders slowed to a pace not seen since the middle of 2020, and retail sector employment was the worst in more than 2 years, said the latest survey from CBBI, a provider of independent economic data. Revenue growth for manufacturers and retailers deteriorated, curbing profits, it said.

After a reprieve in June, when Covid restrictions in places like Shanghai and elsewhere were eased, virus cases flared up again in multiple regions, a threat to the economy’s fragile recovery. Factory activity unexpectedly contracted in July and property sales continued to shrink, data published Sunday showed. Top leaders have signalled a softening on this year’s official growth target of around 5.5 per cent as they stick to the Covid Zero strategy.

“Beware the July rebound narrative. Markets are convinced that easing lockdowns mean the worst is over, but July data show that firms are still largely refusing to invest, borrow and especially now, hire,” Leland Miller, chief executive officer of CBBI, said in the statement. “This is likely because companies simply do not believe that their Covid Zero nightmare is over.”

Some 30 per cent of the 1,050 firms surveyed between July 21 and 28 reported virus infections among employees, with companies in Shanghai having the most outbreaks, followed by Guangdong province in the south and central China, which is home to Wuhan. Beijing matched Shanghai in reporting the fastest increase in cases.

Retailers are facing the brunt of the impact, with revenue growth falling for a fourth straight month, the CBBI survey showed. Income growth for service providers was unchanged in July compared with the second quarter.

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“Retailing is in the most trouble,” Derek Scissors, chief economist at CBBI, said in the statement. “Firm death is almost certainly occurring in the sector now.”

Borrowing by retailers rose slightly last month as companies struggled to stay in business, applying for loans more often and paying a much higher interest rate than previously, said the survey. However, pent-up demand for credit eased in manufacturing and services industries, while loan rejections jumped for services firms. BLOOMBERG