China's factory growth hit by trade spat, bad weather

Newly manufactured wind turbine blades at a factory in Lianyungang, Jiangsu province. China's official Purchasing Managers' Index fell to 51.2 last month, from 51.5 in June. It was the lowest index reading since February.
Newly manufactured wind turbine blades at a factory in Lianyungang, Jiangsu province. China's official Purchasing Managers' Index fell to 51.2 last month, from 51.5 in June. It was the lowest index reading since February.PHOTO: AGENCE FRANCE-PRESSE

BEIJING • Growth in China's manufacturing sector slowed more than expected last month, as the worsening trade dispute with the United States and bad weather weighed on factory activity.

The official Purchasing Managers' Index (PMI) released yesterday fell to 51.2 last month, from 51.5 in June and below the 51.3 forecast in a Reuters poll of economists. It was also the lowest index reading since February, but remained above the 50-point mark that separates growth from contraction for a 24th straight month.

Firms were hurt by trade frictions, rain and high temperatures in July, which is also a cyclically slow season for some sectors, said statistics bureau official Zhao Qinghe in a statement.

The gauge of factory activity is the first major reading of the world's second-largest economy since the second quarter of this year, when China logged a modest slowdown in growth, weighed down by government efforts to tackle debt risks and escalating US trade tensions.

The PMI's new export orders index remained in contraction last month, but did not change from the previous month's reading of 49.8, a sign that trade conditions have not worsened significantly.

Capital Economics senior China economist Julian Evans-Pritchard said a weaker yuan was likely helping exporters cope with the hit to activity from new tariffs, although a weak reading on imports indicated softening domestic demand.

"Today's data is consistent with our view that China's economy is on track to slow further this quarter and next, triggering additional policy easing," he wrote in a note.

The sub-index on imports dipped into contraction last month and was the lowest since February. Beijing and Washington have been engaged in a tit-for-tat exchange of punitive measures and threats of measures against each other's goods. China's export growth cooled slightly but remained solid, as exporters rushed to move shipments before tariffs went into effect on July 6.

A production sub-index fell to 53 last month from 53.6 in June, while a new orders sub-index declined to 52.3 from 53.2.

Another survey released yesterday showed growth in China's service sector moderating last month, with the official non-manufacturing PMI dipping to 54 from 55.

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.

However, factory output growth in June slumped to a four-year low while year-to-date retail sales also cooled, an indication that both the industrial and consumer sectors are losing momentum.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 01, 2018, with the headline 'China's factory growth hit by trade spat, bad weather'. Print Edition | Subscribe