China heads into this month with its factories back in contractionary territory as the threat of a prolonged trade dispute with the US dampens sentiment and stimulus struggles to gain traction.
The manufacturing purchasing managers’ index (PMI) of the Chinese National Bureau of Statistics and an industry group, the China Federation of Logistics and Purchasing, dropped to 49.4 points last month, the weakest since early 2016 and below the level of 50 points, which denotes a contraction.
Measures of new orders and new export orders slipped — a bearish signal for future demand — while readings for input and output prices weakened, the PMI data showed.
Photo: AP
“The slowdown will continue into the next year,” Macquarie Securities Ltd economist Larry Hu (胡偉俊) said. “The weak PMI could result in more government stimulus to shore up the economy.”
There was some good news as the non-manufacturing PMI rose to 53.8 points from 53.4 points, which suggests that stimulus efforts might already be starting to have some effect.
“The services industry is increasingly a bigger part of the economy so that holding up is a counter to the weaker manufacturing, but to maintain the pace of growth, more stimulus measures will be needed,” Canadian Imperial Bank of Commerce macro strategy for Asia head Patrick Bennett said.
Much rides on trade. The US agreed to postpone a tariff increase on US$200 billion in imports from China until March 1 as the two sides try to strike a deal over issues such as the alleged theft of intellectual property and technology, trade barriers and the trade deficit.
Corporate sentiment in China has been hit hard by the trade spat, which is one reason officials in Beijing are pushing for a deal, Commerzbank AG economist Zhou Hao (周浩) said.
“It is very difficult to lay out long term projects at this moment,” he said.
The weak PMI result was foreshadowed by Bloomberg’s reading of early indicators for last month and comes after official data showed the slowdown deepening in November, with industrial production growth the weakest in a decade and industrial profits falling for the first time in almost three years.
The weak export orders suggest deteriorating external demand, which would likely prompt additional policy support from Chinese authorities, mostly on the fiscal side, Standard Chartered PLC Greater China and North Asia chief economist Ding Shuang (丁爽) said.
Recent steps taken to support growth should start to gain traction soon, he said.
“The first quarter could be the low point as growth bottoms out,” he said.
More government support, including looser monetary policy, more cuts in taxes and fees, and investment to upgrade manufacturing, are expected this year, according to a top government planning meeting last month.
ING Bank NV analyst Iris Pang (彭藹嬈) said she expects 4 trillion yuan (US$581.52 billion) in stimulus this year and another 4 trillion yuan in 2020.
“The key is not just the size, though, it is about the speed,” she said.
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