China's factory activity grows at slowest pace in over a year

An SUV production line for the Beijing Automotive Group in Beijing. China's export orders shrank for a fifth month in August and manufacturers are cutting more staff.
An SUV production line for the Beijing Automotive Group in Beijing. China's export orders shrank for a fifth month in August and manufacturers are cutting more staff.PHOTO: AGENCE FRANCE-PRESSE

BEIJING • China's manufacturing activity grew at the slowest pace in over a year in August, with export orders shrinking for a fifth month and employers cutting more staff, a private survey showed yesterday.

The gloomy findings reinforce views that China's economy will cool further in coming months, even as the United States ramps up tariffs on Chinese goods. That is likely to prompt more spending and other growth boosting steps from Beijing.

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) fell to 50.6 last month from July's 50.8, matching economists' forecasts. Though the index remained above the 50-point mark that separates growth from contraction for the 15th consecutive month, it was the weakest since June last year. While output improved modestly, most of the other readings were lacklustre.

"The manufacturing sector continued to weaken amid soft demand, even though the supply side was still stable... I don't think that stable supply can be sustained amid weak demand," CEBM Group's director of macroeconomic analysis Zhengsheng Zhong said in a note accompanying the survey.

"In addition, the worsening employment situation is likely to have an impact on consumption growth. China's economy is now facing relatively obvious downward pressure."

The economy was already showing signs of stress before the US trade row flared. A regulatory crackdown on financial risks and debt was pushing up borrowing costs and making it tougher for firms to get funding, sparking a growing number of defaults.

But the steady reports of weaker export orders suggest the deepening trade row is now adding to that pressure, with the impact starting to ripple through to China's factory floors.

New export orders - an indicator of future activity - have contracted for the longest stretch since the first half of 2016, the Caixin PMI showed. The sub-index came in at 48.8 last month, compared with 48.4 in July. As a result, total new business, domestic and foreign, rose at the weakest pace since May last year.

An official PMI survey last Friday also showed another month of sliding export orders, though its overall activity reading ticked higher.

Facing rising costs and sluggish demand, China's manufacturers have been reducing their payrolls for nearly five years straight, according to the Caixin survey, which focuses more on small and mid-sized firms. But the August staff cuts were the sharpest in over a year.

Chinese officials have pledged to prevent extensive job losses as trade risks mount, following a rise in the July unemployment rate.

Policymakers are accelerating approvals for road and rail projects and are trying to reduce business costs. More cash is being pumped into the financial system to bring down lending rates, taxes are being cut and state banks are being urged to keep credit flowing to companies hit by trade tensions.

But economists caution it will take some time for actual infrastructure construction to get going and put a floor under the cooling economy. Fixed-asset investment growth in the first seven months of the year fell to a record low.

Meanwhile, corporate price pressures continue to rise, the private survey showed. Input costs increased at a sharp and accelerated pace last month but only one in 10 respondents said they could pass these on to their customers.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 04, 2018, with the headline 'China's factory activity grows at slowest pace in over a year'. Print Edition | Subscribe