China sees surprise uptick in factory gauge

But respite amid tariff war with US could be brief as export orders continue to shrink

BEIJING • Growth in China's manufacturing sector unexpectedly picked up last month after a two-month slide, offering some cushion for the slowing economy as the United States rapidly ratchets up tariffs on Chinese goods.

The respite may prove brief, however. Export orders shrank for a third straight month, suggesting a flurry of punitive US trade measures are starting to bite.

The official Purchasing Managers' Index (PMI) released yesterday rose to 51.3 last month, from 51.2 in July, remaining above the 50-point mark that separates growth from contraction for a 25th straight month.

Analysts surveyed by Reuters had forecast the reading would dip slightly for a third straight month to 51.0.

The PMI reading shows China's manufacturing sector is continuing to expand at a steady pace, statistics bureau official Zhao Qinghe said in a statement with the data.

But he acknowledged international trade frictions and other external uncertainties are hurting exports and imports.

The PMI sub-index on new export orders indicated contraction for a third straight month and was at the lowest level since February at 49.4, compared with 49.8 in July.

The import sub-index, considered a gauge of domestic demand, was at the lowest level in at least a year at 49.1, down from 49.6 in July.

Weighed down by rising financing costs, China's economy was already starting to cool even before the trade dispute with Washington escalated, with investment growth at a record low and consumers turning more cautious about spending.

That has prompted Beijing to speed up infrastructure spending and offer help to smaller companies to prevent a sharper slowdown, though policymakers are wary of adding to a mountain of debt that was fuelled by past stimulus binges.

US and Chinese officials ended two days of talks last Thursday with no major breakthrough as their trade war escalated with activation of another round of duelling tariffs on US$16 billion (S$21.9 billion) worth of each country's goods.

US tariffs on another US$200 billion of Chinese goods ranging from furniture to bicycles are expected to take effect this month.

While China's official export data has been largely resilient so far, analysts suspect that may be due to companies rushing out shipments before further tariffs kick in, raising the risk of a sharp drop-off in the coming months.

Chinese exports may grow only 2 per cent in yuan terms in the second half of this year, the State Information Centre under the National Development and Reform Commission predicted.

That compared with a 4.9 per cent rise in the first half.

A production sub-index rose to 53.3 last month from 53.0 in July, while a new orders sub-index declined to 52.2 from 52.3.

A sister survey released by the National Bureau of Statistics of China showed growth in the country's service sector also picked up last month, with the official non-manufacturing PMI rising to 54.2 from 54.0 the previous month.

Chinese policymakers are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports.

The service sector now accounts for more than half of the economy, with rising wages giving Chinese consumers more spending clout.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 01, 2018, with the headline 'China sees surprise uptick in factory gauge'. Print Edition | Subscribe