What’s going on?

In August, China’s manufacturing activity shrank for the first time since April 2020.

What does this mean?

• China’s economy seems to be finally slowing down after having outperformed its rivals’ during the pandemic:
  • a widely followed manufacturing activity survey (asking factory managers how busy they’ve been compared to the month before) showed activity in Chinese factories shrank for the first time since the early stages of the pandemic. 
  • their economic activities are also being hampered with weaker export demand, soaring raw material prices, and a slowing property sector.

Why should I care?

The bigger picture: China is losing its crown

• Several IBs have cut their growth forecasts for China, and the released data could bring about even more downgrades.
• That’s not good news for Chinese stocks, which are already under pressure from the government’s crackdown on for-profit education industry (China’s fastest-growing industries). The 300-biggest-Chinese-stock index has been down by 7% so far in 2021, even as the US and European stock markets are enjoying their all-time highs.

Zooming out: Emissions are not giving itsself for free anymore

• By contrast, manufacturing activity in the eurozone is booming at near-record rates. However, eurzone’s factories are some of the biggest CO2 emitters, besides fossil fuel power plants and the transport industry.
• The EU is running a “cap and trade” system in an effort to limit emissions in polluting industries. But companies can still exceed their cap by buying “allowances” from the EU’s carbon market, and the price of carbon allowances hit a record high last week.

Cap-and-trade sets the quantity of emissions reductions and lets the market determine the price.

Frank. C. (2014) Pricing Carbon: A Carbon Tax or Cap-And-Trade?. Brookings. Available at: https://www.brookings.edu/blog/planetpolicy/2014/08/12/pricing-carbon-a-carbon-tax-or-cap-and-trade/

Content source: Finimize (2021) Crease And Desist. Available at: https://www.finimize.com/wp/news/crease-and-desist/ [Accessed on Sep 5, 2021]