Growth in China’s factory sector last month stalled after 15 months of expansion, with export orders falling at their fastest rate in more than two years, a private survey showed yesterday, suggesting US tariffs are starting to inflict a heavier toll on the Chinese economy.
A separate, official survey confirmed a further weakening last month in Chinese manufacturing, with domestic and export demand also softening, though its headline reading still pointed to some growth.
Taken together, the business activity gauges — the first major readings on China’s economy for last month — confirm consensus views that the world’s second-largest economy is continuing to cool, which is likely to prompt Chinese policymakers to roll out more growth support measures in coming months.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for this month fell more than expected from 50.6 in August to 50.0.
The neutral 50-mark divides expansion from contraction on a monthly basis. Last month was the first time China’s factories had not seen business improve since May last year, when activity contracted.
New export orders — an indicator of future activity — shrank at the fastest pace since February 2016, with companies attributing the shrinking orders to trade frictions and subsequent tariffs.
“Expansion across the manufacturing sector weakened in September, as exports increasingly dragged down performance and continued softening demand began to have an impact on companies’ production,” said Zhong Zhengsheng (鍾正生), director of macroeconomic analysis at CEBM Group Ltd. “Downward pressure on China’s economy was significant.”
Washington on Sept. 24 placed tariffs on US$200 billion of Chinese goods and is threatening to impose duties on virtually all of the goods China exports to the US.
Plans for fresh trade talks collapsed in recent weeks and both sides appear to be digging in for a long fight, casting a pall over the outlook for global economic growth.
The official Purchasing Managers’ Index (PMI), released yesterday by the Chinese National Bureau of Statistics, fell from 51.3 in August to a seven-month low of 50.8 last month, but remained above the 50-point mark separating growth from contraction for the 26th straight month.
New export orders, an indicator of future activity, contracted for a fourth straight month, with the sub-index falling from 49.4 in August to 48.0.
While China’s official export data has proved surprisingly resilient so far, many analysts believe that companies have been rushing out shipments to the US to beat successive rounds of tariffs, raising the risk of a sharp drop once duties are actually imposed. The deepening slump in export orders might be bearing that theory out.
Policymakers have shifted focus in recent months to growth boosting measures to cushion the economy and weather the trade storm. They have sought to bring financing costs down, boost lending to smaller businesses, cut taxes and fast-track more infrastructure projects.
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