US-CHINA TRADE WAR: BOTH SIDES HURTING

China factory activity shrinks for fourth month in a row

Shoppers at a mall in Pennsylvania, in the US. American retailers may do all they can to avoid raising prices during the back-to-school and holiday shopping season. But they will have no choice if tariffs continue to rise. Chinese factory workers in
Chinese factory workers in Shandong province producing cloth for export to the US. The official factory gauge showed trade frictions and cooling global demand continued to wreak havoc on China's exporters. PHOTO: AGENCE FRANCE-PRESSE

China sees another month of poor PMI while US consumers face brunt of tariffs

BEIJING • Factory activity in China shrank last month for the fourth month in a row as the US ramped up trade pressure and domestic demand remained sluggish, pointing to a further slowdown in the world's second-largest economy.

Persistent weakness in China's vast manufacturing sector could fuel expectations that Beijing needs to roll out stimulus more quickly, and more aggressively, to weather the biggest downturn in decades.

The Purchasing Managers' Index (PMI) fell to 49.5 last month, below the 50-point mark that separates growth from contraction on a monthly basis, China's National Bureau of Statistics said yesterday. It was 49.7 in July.

The official factory gauge showed growing trade frictions with the United States and cooling global demand continued to wreak havoc on China's exporters.

Export orders fell for the 15th straight month last month, although at a slower pace, with the sub-index picking up to 47.2 from July's 46.9.

Total new orders - from home and abroad - also continued to fall, indicating domestic demand remains soft, despite a flurry of growth-boosting measures over the past year.

"Frontloading of exports to the US ahead of higher tariffs supported trade and overall activity growth, but this effect will likely fade in the next few months," said analysts at Goldman Sachs in a note.

Manufacturers in consumption-oriented industries such as the auto sector have been especially vulnerable. Carmakers such as Geely and Great Wall have slashed expectations for sales and profits.

The data showed activity at medium-sized and small firms contracted, even as large manufacturers, many backed by the government, managed to expand last month.

Factories continued to shed jobs last month amid the uncertain business outlook. The employment sub-index dropped to 46.9, compared with 47.1 in July.

GRIM OUTLOOK

Frontloading of exports to the US ahead of higher tariffs supported trade and overall activity growth, but this effect will likely fade in the next few months.

ANALYSTS AT GOLDMAN SACHS, in a note.

 
 
 

Last month saw dramatic escalations in the bitter year-long Sino-US trade row, with President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from today, and China letting its yuan currency sharply weaken days later.

After Beijing hit back with retaliatory tariffs, Mr Trump said existing levies would also be raised in the coming months. The combined moves now effectively cover all of China's exports to the US.

Mr Trump said late on Friday that trade teams from both sides continue to talk and will meet this month, but tariff increases on Chinese goods set to go into effect today will not be delayed.

The US President had said earlier last week that China wants to reach a deal "very badly", citing what he described as increasing economic pressure on Beijing and job losses.

But most analysts are highly doubtful of an end to the dispute any time soon, and some have recently cut growth forecasts for China in the coming quarters.

The sudden deterioration in trade ties has prompted speculation over whether China needs to roll out more forceful measures to keep growth from sliding below 6 per cent this year, the bottom end of its target range of around 6 per cent to 6.5 per cent.

Analysts widely expect Beijing will cut some of its major lending rates this month for the first time in four years to help stabilise growth.

But sources had told Reuters before the latest trade escalations that big benchmark rate cuts were considered a last resort, as policymakers worry that could fuel a further build-up in debt and squeeze banks' profit margins, heightening financial sector risks.

A version of this article appeared in the print edition of The Sunday Times on September 01, 2019, with the headline 'China factory activity shrinks for fourth month in a row'. Print Edition | Subscribe