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China’s Industry First Contraction Since February 2020

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China’s manufacturing activity has contracted this month for the first time since February 2020.

 

China’s industry has been hit hard by the massive power shortages plaguing the country and government measures to reduce power consumption, sometimes forcing factories to close.

The government’s purchasing managers’ index, which measures activity, fell to 49.6 in September from 50.1 in August. A reading of 50 or more indicates growth, below that, contraction. However, the indicator for the service sector in China, for example, catering and retail, was above 50.

Several investment banks have already revised down their growth estimates for the world’s second-largest Chinese economy this year due to power shortages, which come on top of supply chain problems, high commodity prices and local virus outbreaks in China.

Coal shortages caused the power shortage to fire plants, the high demand for electricity due to the recovery from the corona crisis and measures taken by China to reduce emissions, which forced coal plants to close.

There is also a lot of uncertainty surrounding the major Chinese real estate developer Evergrande, which is in serious financial trouble and is in danger of going bankrupt. A bankruptcy of Evergrande could also harm the rest of the Chinese economy, for example, at banks and other property developers.

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