What’s going on?
Here’s a new wrinkle in China’s once smooth recovery: data out on Wednesday showed China’s manufacturing activity shrank in August for the first time since April 2020.
What does this mean?
It looks like China’s economy is finally losing steam after having outperformed its rivals’ during the pandemic: a widely followed manufacturing activity survey – which asks factory managers how busy they’ve been compared to the month before – showed activity in Chinese factories shrank for the first time since the early stages of the pandemic. And it’s not the country’s first sign of trouble: China’s also contending with weaker export demand, soaring prices for raw materials, and a slowing property sector – all of which are hampering economic activity.
Why should I care?
For markets: Chinese stocks are losing fans.
Several investment banks have recently cut their growth forecasts for China, and Wednesday’s data could bring about even more downgrades. That’s not good news for Chinese stocks, which are already under pressure from the government’s ever-intensifying crackdown on the country’s fastest-growing industries. Just look at the popular index made up of the biggest 300 Chinese stocks: it’s down by 7% so far this year, even as US and European stock markets flirt with all-time highs.
Zooming out: Watch your emissions.
China might be slowing down, but manufacturing activity in the eurozone is booming at near-record rates. Trouble is, the region’s factories are some of the biggest emitters of carbon dioxide, alongside fossil fuel power plants and the transport industry. The European Union is trying to do something about that, with a “cap and trade” system in place to limit emissions in polluting industries. But companies can still exceed their cap by buying “allowances” from the EU’s carbon market, and boy have they been doing that: the price of carbon allowances hit a record high this week.