'China's Economic Twin Engines' Manufacturing and Real Estate Are Shaking

Manufacturing PMI Falls Below 50 Signaling Contraction
Real Estate Development Market Also Cooling... Mortgage Repayment Boycott Spreading

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Hyun-jung] The manufacturing and real estate sectors, which have driven China's economy, are significantly shaken, increasing downward pressure on the global economy. Strict COVID-19 lockdowns followed by a decline in demand and the spreading movement of mortgage repayment boycotts are intensifying market instability.

On the 31st (local time), The Wall Street Journal reported, "China's economic pillars, manufacturing and real estate sectors, were shaken in July," and assessed that "economic pressure will not ease."

According to China's National Bureau of Statistics, the local manufacturing Purchasing Managers' Index (PMI) fell to 49.0 last month from 50.2 the previous month. Not only did it drop below the baseline (50.0) that separates expansion from contraction, but it also fell short of the median forecast (50.3) of economists surveyed by the Journal. Separately released non-manufacturing PMI declined from 54.7 in June to 53.8 in July, and the sub-index measuring service sector activity dropped from 54.3 to 52.8 during the same period.

Real estate-related indicators also plunged after a brief two-month recovery. According to data released by China Real Estate Information Corporation, the July sales of the top 100 real estate development companies in China amounted to 523.1 billion yuan (approximately 101.0733 trillion KRW), a sharp 39.7% decrease compared to the same period last year. Compared to the previous month, sales also fell by 28.6%. With the lifting of COVID-19 lockdowns in major cities such as Shanghai, related indicators had improved in May and June.

Recently, the spread of mortgage repayment refusal incidents in China has further increased related concerns. According to major foreign media, as the economy slows and housing prices fall, homebuyers in China have begun refusing payments (mortgage boycotts) before the completion of their homes. Bloomberg reported that mortgage boycotts have shown signs since the end of last month, currently causing problems in 100 projects across 19 regions. According to the communication's own scenario, 1.8% to 6.5% of all mortgages in China are expected to be exposed to this issue.

[Image source=Reuters Yonhap News]

Earlier, China reported that its GDP growth in the second quarter of this year was only 0.4% year-on-year on an annualized basis. This figure falls far short of the initial target of 5.5% annual growth.

Zhao Qinghe, senior statistician at the National Bureau of Statistics, cited lack of market demand and vulnerability of energy-intensive industries as concerns, emphasizing that "the foundation for economic recovery must be solidified."

Economic indicators in the United States and the Eurozone (19 countries using the euro) are also deteriorating. The U.S. Department of Commerce announced that after a 1.6% decline in GDP in the first quarter of this year adjusted for seasonality and inflation, the second quarter also saw a 0.9% annualized decline. Two consecutive quarters of decline are generally considered a signal of a "recession."

Eurostat, the statistical office of the European Union (EU), reported that the Eurozone's preliminary GDP for the second quarter rose 0.7% quarter-on-quarter, performing relatively well. However, according to business surveys, economic activity in the Eurozone is already decreasing, and pressure is expected to intensify due to reduced natural gas supplies from Russia, the Journal assessed.

The Journal diagnosed, "Pressure on major world economies arises as global economic activity and consumers suffer widespread damage from price increases triggered by supply disruptions and imbalances caused by the pandemic, which have sharply worsened due to the Ukraine war," adding, "Aggressive interest rate hikes by major central banks worldwide will further suppress economic activity."

This content was produced with the assistance of AI translation services.