The outlook for China’s manufacturing sector deteriorated further last month, underlining the weakness in the domestic economy just as a new round of tariffs kicks in.
The manufacturing purchasing managers’ index (PMI) dropped to 49.5, according to data released on Saturday by the Chinese National Bureau of Statistics, with sub-gauges showing that domestic and new overseas orders contracted.
A different, private gauge focused more on smaller companies showed manufacturing returning to a state of expansion.
The Caixin PMI rose to 50.4 from 49.9 in July, data released yesterday showed.
In Saturday’s official data there was a pickup in the PMI for small firms, although it was still in contraction.
While the Caixin PMI indicated expansion, “we are not convinced it indicates a genuine improvement in China’s export sector — the focus of the survey. The rise was mainly driven by the production side,” Bloomberg Economics analysts David Qu (曲天石) and Chang Shu (舒暢) said.
In the official PMI report, the index showing prices at the factory door continued to decline, although the renewed contraction of input prices should relieve some of the pressure on company profits.
The economy slowed in July and a set of early data collated by Bloomberg showed the trend continuing last month, with poor sales managers’ sentiment and falling trade.
However, an improvement in small business confidence is a sign that earlier pro-growth measures could be having an effect.
On Sunday, higher US tariffs on about US$110 billion in Chinese imports took effect, as did Beijing’s retaliatory duties on US goods coming the other way.
The Chinese government is not sounding the alarm just yet.
The Chinese State Council released a statement on Sunday saying that overall risks are “controllable” and the economy is stable.
Counter-cyclical adjustments in economic policy would at the same time be increased, it said.
Economists continue to warn that the trade dispute risks dragging the global economy into recession, a development that would ultimately feed through into Chinese domestic demand.
For now, officials might take some encouragement from the relative strength of the services and construction PMI index, which rose marginally last month and remains in expansion.
That partly reflects the long-term shift of the economy away from investment and exports and toward a consumption-led growth model.
Meanwhile, PMIs for Japan, South Korea and Taiwan remained in negative territory.
Japan’s Jibun Bank and IHS Markit PMI fell to 49.3 from 49.4 in July, the eighth consecutive month of contraction.
While South Korea’s IHS Markit PMI rose to 49 from 47.3 in July, it is still showing a contraction.
The three manufacturing nations have been among the most exposed to trade tensions, a cooling technology boom and slowing demand in line with a weaker global economy.
India’s manufacturing gauge slid to 51.4, its weakest in more than a year, from 52.5.
It was a soft picture across Southeast Asia with Indonesia slipping further into contraction — to its lowest since July 2017 — and the Philippines, Thailand and Myanmar all expanding more slowly. PMIs for Malaysia and Vietnam — the weakest and strongest performers in the region — are due today.
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