The Caixin China General Services PMI has the second sharpest decline on record.
The introduction of tighter COVID-19 containment measures in China led to quicker reductions in service sector business activity and overall sales in April. Notably, both activity and new orders fell at the second-sharpest rates since the survey began in November 2005, and were exceeded only by those seen at the initial onset of the pandemic in February 2020. Input costs meanwhile rose solidly, but efforts to attract new business drove a renewed drop in prices charged by services companies.
The seasonally adjusted headline Business Activity Index slipped from 42.0 in March to 36.2 in April, to signal a second successive monthly fall in services activity. Furthermore, the rate of reduction was the seconds harpest seen in the survey history (behind only February 2020), with companies frequently linking the fall to tighter COVID-19 restrictions and subsequent disruption to operations.
In response, China has resorted to fiscal stimulus.
2/2
This is expected to drive RMB 45 billion of consumption, but even if it does, it just means the city is providing consumption subsidies of roughly 0.2% of Shenzhen’s GDP.— Michael Pettis (@michaelxpettis) May 30, 2022
China Subsidizes Airlines, Car Purchases to Ease Pain of Crippling Lockdowns
Here’s the article Michael Pettis linked to: China Subsidizes Airlines, Car Purchases to Ease Pain of Crippling Lockdowns
Airlines will receive compensation of as much as 24,000 yuan ($3,564) per flying hour in weeks where they lose money and their average passenger flight is less than 75% full, according to a Thursday statement (link in Chinese) jointly issued by the Ministry of Finance and Civil Aviation Administration of China.
Local governments are also ramping up subsidies to boost consumer spending. The government of South China metropolis Shenzhen issued a series of measures on Thursday to subsidize purchases of new-energy vehicles (NEVs), electronics, home appliances, and tourism and other services.
Consumers buying an NEV in Shenzhen this year will receive a subsidy of as much as 10,000 yuan, and they will enjoy subsidy equal to a 15% discount on their purchases of certain electronics products such as smartphones and laptops as well as appliances including televisions, according to the official statement. The Shenzhen government expects the measures to drive 45 billion yuan ($6.7 billion) in consumer spending.
China’s policymakers have pledged to take stronger measures to shore up the economy and support the businesses hit by lockdowns, including subsidizing consumer spending, offering tax relief for businesses, and deferring loan repayments for small companies and households.
Since April, local governments began offering billions of yuan worth of coupons or vouchers to boost consumer spending, but the effect appears to have been limited, as retail sales nationwide plunged 11.1% year-on-year last month, a deeper contraction than the 3.5% drop in March.
It sounds significant, but Michael Pettis says it does not amount to much.
Distaste for Free Money in China
While there are surely concerns over the tendency to save, further rise in debt, and RMB depreciation, this simple dislike towards “free money” may be the most important. For a generation living through the Cultural Revolution, the concept of MMT is unlikely to resonate with them
— Shanghai Macro Strategist (@ShanghaiMacro) May 29, 2022
Stimulus in Japan
Reuters reports Japan to compile fresh stimulus package to cushion fuel blow, PM says.
That article is from March 23, a bit over two months old.
But here’s a second one from April 26: Japan PM Kishida Urges BOJ to Keep Ultra-Low Rate Policy.
Japanese Prime Minister Fumio Kishida on Tuesday urged the central bank to maintain its ultra-loose monetary policy, brushing aside the idea of using interest rate hikes to prevent further declines in the yen.
Prospects of widening U.S.-Japan interest rate differentials have pushed the yen down to two-decade lows against the dollar, stoking fear among lawmakers that a weak currency could do more harm than good to the economy by pushing up import costs.
Global Imbalances Mount
“The BOJ is undertaking its current policy to achieve its 2% inflation target,” Kishida told a news conference. “Our goal would be to achieve currency stability with such economic policies,” he said.
Well, good luck with that, as the US and EU discovered. Japan will be screwed big time if energy prices keep rising.
I suspect China will most likely do what it always has done, and that is try to boost exports just as inventories are mounting globally.
End of the 40-Year Bull in Debt and a “Global Depression” Threat
For more discussion of the stressed global forces, please see End of the 40-Year Bull in Debt and a “Global Depression” Threat
Here’s one thing I am sure of: China did not decouple from the global economy in 2008 and the US will not do so in 2022.
This post originated at MishTalk.Com.
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