China: Zero-COVID Strategy Weighs on Economy

China

Let’s take a look at China, the starting point of the global virus pandemic. The country got some positive news from the Purchasing Managers’ Index (PMI) for the manufacturing sector, which increased significantly and even exceeded analysts’ expectations. In contrast, the PMI for the service sector remained unchanged.

Purchasing Managers’ Index Better Than Expected

Chinese authorities attribute the significant improvement in the manufacturing sector mainly to the easing of an electricity shortage. The government has also intervened in commodities markets to make basic manufacturing inputs cheaper. 

Demand in China Remains Weak

However, the government interventions have not yet had an impact on demand. According to a forecast by the Chinese Passenger Car Association, automobile sales will continue to shrink in November, and the housing market in major cities also remains weak.

Outlook For the Economy Remains Gloomy

There are two main reasons for the weak demand:

  1. The Chinese authorities continue to adhere to an unrealistically-strict “zero-covid” policy.
  2. The real estate bust is leaving its mark. The Chinese leadership wants to continue to massively reduce debt.

Despite the significantly improved purchasing managers’ indices, the growth prospects in China remain bleak. We analysts expect growth of 4.5% in 2022 instead of 8% this year.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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