In May, the Purchasing Managers’ Index (PMI) for China dropped below the boom-bust line, indicating a faltering strategy by the Chinese authorities to boost the economy through the manufacturing sector. Overall fiscal revenues for the central and local governments in the first four months showed a declining trend, with all provinces and municipalities except Shanghai running deficits. Experts pointed out that China’s economic model is unsustainable, lacking driving force for economic growth.
According to China’s National Bureau of Statistics, the PMI for the manufacturing sector in China was 49.5% in May, a decrease of 0.9 percentage points from the previous month, signaling a downward trend in manufacturing activity. The PMI survey, which targets 3,200 manufacturing companies and assesses parameters such as orders, production, and employment, indicates expansion when above 50 and contraction when below 50. The official PMI value is a crucial economic indicator reflecting the economic situation for the month and garners significant attention.
Since May 2023, China has only seen PMI figures above the boom-bust line (50) in September 2023 (50.2), March 2024 (50.8), and April 2024 (50.4), while the remaining months have stayed below this threshold. The consecutive months of March and April being above the line were initially seen as the start of China’s economic recovery, but the index for May has reverted back.
This data suggests a contraction in China’s manufacturing activity, casting doubt on the effectiveness of the strategy of relying on exports to revive the economy, which the authorities have been following.
Economists had predicted a PMI index of 50.4 for China in May, in line with April. While the unexpected PMI figure for May surprised some, it was deemed inevitable considering the macroeconomic conditions in China. Signs in the preceding months indicated that China’s current pace of manufacturing expansion was unsustainable, attributed to a surplus in output compared to new orders and a growing reliance on exports amidst a relative decline in export growth due to changes in the international economic and trade environment.
“Nobel Prize-winning economist and Yale University professor Paul Krugman remarked on Bloomberg TV’s Asian Markets program on June 3, ‘The world won’t accept everything China wants to export.’ He highlighted the significant lack of domestic consumption and investment opportunities in China, underscoring the unsustainability of the country’s overall economic model.
He criticized the Chinese leadership for focusing solely on production and international exports while neglecting to support domestic consumption. During his recent visit to Beijing, he sensed a lack of vitality and a prevailing sense of pessimism, describing the atmosphere as a ‘serious sense of defeat.’
While China continues to flood the international market with its “new three items” (solar products, lithium-ion batteries, electric cars) at low prices, domestic prices for everyday goods have been on the rise. Even affordable necessities like instant noodles, pickled vegetables, and beverages, dubbed as the “poor man’s trio,” have experienced price hikes of over 10%, prompting complaints from ordinary citizens.
As Krugman noted, today’s China is grappling with economic decline, rising unemployment, and weak consumption, creating an atmosphere of pessimism and suggesting a vicious cycle in the country’s overall economic model.
Professor Xie Tian from the University of South Carolina expressed his belief to Epoch Times that China’s economic downturn is likely to persist for at least another year or two.
Even Chinese economists acknowledge the need for China to move beyond relying solely on exports to drive the economy and instead implement more proactive fiscal policies to boost domestic demand.
On June 1, Chinese economist Ren Zeping wrote on “Sina Finance” that “With the decline in the manufacturing PMI below the boom-bust line, it’s time to kickstart a new round of economic stimulus.” With the decline in May’s manufacturing PMI below the boom-bust line, there is insufficient domestic demand. Orders in manufacturing have dropped, while real estate sales remain sluggish, indicating the need for innovative economic stimulation methods.
According to the Ministry of Finance’s data released on May 20, in April 2024, China’s general public budget revenue for January to April was 80.926 trillion yuan, a decrease of 2.7% year-on-year. During the same period, the general public budget expenditure was 89.483 trillion yuan, resulting in a deficit of 8.557 trillion yuan.
In the first four months of 2024, among China’s 31 provinces and autonomous regions, only Shanghai recorded a surplus in fiscal revenue exceeding expenditure, with a self-sufficiency rate of 124.44%. Zhejiang ranked second with a self-sufficiency rate of 94.62%, followed by Jiangsu at 83.98%, Fujian at 82.12%, and Tianjin at 81.30%. However, the remaining 30 provinces and autonomous regions faced varying degrees of fiscal deficits, indicating a worsening local financial crisis within China.
Former economic powerhouse Guangdong province ranked just eighth in fiscal self-sufficiency, trailing behind Shandong at seventh. Beijing stood sixth with a self-sufficiency rate of 76.54%.
At the bottom of the list in self-sufficiency rates were Tibet with only 10.98%, Qinghai at 17.39%, Gansu at 22.62%, Heilongjiang at 25.14%, and Ningxia at 31.39%. The average fiscal revenue self-sufficiency rate across all provinces and regions was approximately 68.32%.
This data highlights that the finances of all 30 provinces and autonomous regions heavily rely on subsidies from the central government, with an average subsidy rate of 31.98%. While Shanghai’s financial situation is relatively better, given the current economic climate, sustaining such independence seems increasingly challenging.
Commentators looking at this data remarked, “In fact, it has been like this for two years. After a brief revival following last year’s loosening, some coastal provinces, Shanghai, and Beijing saw a slight fiscal revenue increase. However, this year, things have taken a turn for the worse.” “It is suggested that the Communist regime step down.” “The CCP cannot hold on any longer!”
According to China’s General Administration of Customs, countries and regions that experienced a decrease in imports and exports from China in April included a 5% drop to the European Union countries (specifically an 8.2% decline in Germany, 12.3% in the Netherlands, and 4.2% in France), a 2.3% decrease to the United States, a 10.3% reduction to the Philippines, a 6.4% decrease to Japan, and a 5% drop to Australia.
As of now, the trade statistics for China in May have not yet been released. However, based on the April data, China saw reduced trade volumes with the United States, Japan, the European Union, and Australia – key trading partners that have been actively resisting Chinese product dumping and curbing Chinese influence expansion geopolitically.
“The old three engines driving the Chinese economy have stalled, leading to excess production capacity. The new production capacity and new three engines have basically not been activated and have been defeated by Europe and the United States, reverting to the original state. Therefore, the Chinese economy lacks both the old drivers and the new drivers of production.” said Professor Xie Tian.