China private factory gauge plunges to weakest in over 2 years despite tariff reprieve
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The picture painted by more export-oriented Caixin survey gloomier than official PMI reading released last week.
PHOTO: AFP
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BEIJING – China’s manufacturing sector had its worst slump since September 2022, according to a private survey, as higher US tariffs took a toll on smaller exporters despite a truce in the trade war with the United States.
The Caixin manufacturing purchasing managers’ index (PMI) fell to 48.3 in May from 50.4 in April, according to a statement released by Caixin and S&P Global on June 3, well below the 50-point mark separating expansion from contraction.
The figure is below every estimate in a Bloomberg survey of analysts, whose median was 50.7.
“Manufacturing supply and demand declined, dragged by overseas demand,” senior economist Wang Zhe of the Caixin Insight Group said in a statement. “The downward pressure on the economy has significantly intensified compared with preceding periods.”
The results, based on a poll conducted from May 12 to May 21, were far weaker than the official PMI reading released on May 31, which showed manufacturing contracted less, thanks to the reprieve on tariffs. The National Bureau of Statistics typically conducts its surveys between the 22nd and 25th of every month.
The divergence highlights the disproportionate damage to small and medium-sized Chinese companies from the trade war started by US President Donald Trump, according to Ms Becky Liu, head of China macro strategy at Standard Chartered Bank.
The impact from US tariffs “is mostly on smaller exporters with a hit to employment, while a direct impact on large corporations and overall exports will likely be more limited given their much more diversified business profiles,” Ms Liu said.
The picture painted by the more export-oriented Caixin survey offers another glimpse of how factories adjusted in the initial aftermath of the trade ceasefire, after China and the US agreed to reduce tariffs for 90 days beginning from May 14.
A renewed fall in new orders accompanied a decline in manufacturing output, according to the report.
Companies reduced purchasing activity and cut staffing levels, although sentiment towards future output improved, it said.
The prospects for manufacturing in the months ahead are still in question, given an uncertain export outlook, and especially as tensions rose again in recent days between the world’s two biggest economies.
The Caixin results have tended to be higher than those from the official poll over the previous year as exports stayed strong.
The two surveys cover different sample sizes, locations and business types, with the private poll focusing on small and medium-sized firms in the non-state sector.
“The trade environment remains highly uncertain,” said Mr Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group.
“The key remains on property, which is still sluggish with no sign of recovery”. BLOOMBERG
