China seems to be slowly drifting into an economic crisis as the factory activities have contracted to the lowest level since February 2020. According to reports from the Purchasing Managers’ Index (PMI) that analyses manufacturing activity, it has recorded a slump from 50.1 in August to 49.6 now. Any figure below 50 indicates the contraction of manufacturing activities.
This is the first-ever decline China has witnessed on PMI since February last year when factory activities remained suspended due to the pandemic.
The world economy is slowly recovering after the pandemic, but according to media reports, China is facing a complex set of problems on many fronts.
China’s real estate giant Evergrande Group which once symbolized the real estate boom of China is making a desperate attempt to raise funds to pay outstanding liabilities worth $305 billion. Its share plunged to its lowest level in the last 11 years.
Set up in 1996 as a bottled water unit, Guangzhou based Evergrande moved to the real estate sector and expanded its business in more than 250 Chinese cities selling homes mostly to the middle class of China. But the financial crisis of the company has shaken the confidence of people. Financial experts fear that this can be “China’s Lehman moment”.
Power crisis
China has been facing an unprecedented power crisis affecting manufacturing and every other sector. According to the media reports, the power outages have affected most of Eastern China, where the bulk of the population lives and works. The reports further state that blackouts have affected at least 17 provinces in recent months.
As the world economy has reopened and factories are back to production, it has increased the demand of coal which generates electricity. The high demand has increased coal prices. But Chinese regulators are not allowing power utilities to raise the rate to cover rising costs. So power utilities are not operating for more hours.
There are reports of many local power transmission authorities having issued orders to shut off power to many factories. Such instances were reported in Houjie which is a township in northwestern Dongguan.
Chinese state media has reported that 20 out of 30 provincial regions have implemented electricity rationing measures since mid-September. The current total stockpile of coal by China’s 6 major power generation units is just over 11.3 million tonnes, barely enough for 2 weeks.
Nomura’s Chief China Economist Ting Lu cut his forecast for Chinese GDP growth this year as factories shut down to comply with carbon emissions reduction targets. Nomura is a Japanese financial institution.
Apple, Tesla shut down factories temporarily
On Sunday (September 26), Apple Inc supplier Unimicron Technology Corp informed that production has been halted at 3 Chinese factories in order to comply with the new emission standards set by the Communist regime.
Reuters had recently reported that the power crunch in China has begun to affect tech manufacturers in the eastern and southeastern coasts of the country. Firms such as Tesla and Apple have been facing the brunt of it. About 30 Taiwanese firms with Chinese operations and 15 indigenous Chinese firms had mentioned power curbs hampering production activity in their exchange filings.
