China’s Economy Slows in October as Business Confidence Slumps

Early indication index declines to 4, indicating loss of momentum.

Resurgent Covid, possibly dragged by poor demand: StanChart

As vehicle and real estate sales declined, global commerce shrank, and small company confidence fell, China's economy stagnated in October, indicating that the country's gloomy economic outlook was unaffected by previous month's increase in activity.

According to Bloomberg's composite index of eight early indications for this month, that is the outlook. At 4, the overall gauge showed a decline in momentum following three months of gain.

Economy Slumps

This month, China's economic growth has slowed.

For the first time since May, when lockdowns in Shanghai and other cities were at their height, small company confidence decreased again this month. According to a study of more than 500 businesses conducted by analysts at Standard Chartered Plc, the expectation index stagnated and nearly every other indicator of the state of smaller companies was negative.

Even while export orders increased, the economists concluded that China's demand was weaker because of a decline at domestically oriented businesses. The economy is being negatively impacted by Covid Zero travel and movement restrictions, as evidenced by the fact that an indicator for the manufacturing sector fell to its lowest level since February 2020 and the index for lodging and catering was at its lowest level since at least May 2020.

According to economists Hunter Chan and Ding Shuang, "Both the manufacturing and services performance sub-indices slipped into contractionary territory." They added, "Covid comeback and decreased demand were probably drags." The National Day holiday period also didn't seem to increase spending much; experts deemed it to have "insignificant" impact.

General Slowdown

Both foreign and domestic demand is slowing

Although there have been increased measures to prevent outbreaks and significantly stricter restrictions on travel and movement in the lead-up to the recently concluded Communist Party meeting, the number of daily Covid cases in China has been averaging about 1,000 since early August. Due to these limits, the number of cases hasn't been growing exponentially at the expense of private consumption, which only increased 2.5% in September from the same month last year.

The government's plans to modify the Covid Zero policy have not been made clear by the party conference, which contributed to Monday's stock market decline being the steepest since 2008. Tuesday saw a little reversal in that decline, but the benchmark onshore share index has nevertheless lost more than 25% of its value this year.

However, Chinese state media almost ignored the massive selloff in favor of focusing much of their front pages on official news stories about President Xi Jinping. Additionally, social media discussion and news were restricted.

The Communist Party-run newspaper The Securities Times published an article on how the housing market would bounce back this quarter after a more than 12-month decline.

Despite this confidence, property transactions fell almost 40% during the long holiday earlier in the month, which is typically a time of strong sales, and house sales in the four largest Chinese cities fell almost 30% in the first three weeks of the month compared to a year earlier.

Market Downturn

Stock market and metal stocks are both falling

Steel and cement demand have both been severely reduced as a result of the housing market downturn. While mills' total steel stockpiles increased this month despite daily crude steel output declining from earlier in October, stocks of steel rebar have continued to decline. As a result, iron ore prices have fallen to their lowest levels since November. In recent months, the prices of other metals have also decreased due to dimming global development forecasts.

Early Warning Signs

By combining a three-month weighted average of the monthly changes of eight variables, which are based on company surveys or market prices, Bloomberg Economics produces the overall activity reading.

• Major onshore stocks: Shanghai or Shenzhen-listed A-share stocks in the CSI 300 index (through market close on 25th of the month).
• Total floor space sold in the four Tier-1 Chinese cities (Beijing, Shanghai, Guangzhou and Shenzhen).
• Rebar steel in stock for use as reinforcement in construction (in 10,000 metric tons). Rising demand is indicated by declining inventory.
• Spot price for refined copper on the Shanghai market in Yuan per metric ton.
• Exports from South Korea – exports during the first 20 days of every month (year-on-year change).
• Bloomberg Economics' factory inflation tracker for Chinese producer prices (year-on-year change).
• Small and medium-sized business confidence: Standard Chartered survey of businesses.
• Sales of passenger vehicles: A monthly result derived from information on the weekly average of sales provided by the China Passenger Car Association.