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China’s Economy Struggling Across All Sectors, Beige Book Says

Bloomberg News

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China’s economy in the third quarter was the weakest it has been this year, according to the China Beige Book, with manufacturing, property and the services sectors all worsening, even as borrowing picked up.

Manufacturing revenue, profits, volumes and sales prices fell by double-digit paces from the previous three months, although borrowing remained at its highest level, according to the quarterly report.

“Retail and services stood out mostly for how incapable they were at picking up the slack,” the report said.

The current weakness in the economy is primarily due to manufacturing. While a drop in exports was a factor, most of the decline was due to “considerably slower sales price growth,” according to the report. Prices at the factory door stopped rising in June and then fell in July and August, which can hurt companies’ profits, limiting their ability to invest and service debt.

The services sector continued to underperform, with both revenue and profits dropping from the same period last year. Hiring also slowed, which means that “if manufacturing does have to shed a large number of jobs, services has shown no capacity to absorb them,” the report said.

There was a resurgence of borrowing in the period. Shadow banking posted the biggest quarterly increase since the Beige Book began, bond issuance rose for a fifth quarter and lending increased. These trends indicate there isn’t a shortage of credit to the economy, the report said.

Pent-up demand for loans, which shows who wants to get access to capital but can’t, was at its lowest in four years. Meanwhile, more than 30% of manufacturing firms were borrowing each quarter, indicating that “the sector as a whole is in clear distress or a large proportion of firms should be failing,” according to the report.

The report is based on interviews with more than 3,300 firms conducted in China from mid-August to mid-September.

To contact Bloomberg News staff for this story: James Mayger in Beijing at jmayger@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jiyeun Lee, Michael S. Arnold

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