China plant growth weakest in over 2 years, dim in export orders diver

BEIJING (Reuters) – China's manufacturing industry barely expanded in October and missed expectations, as both domestic and external demand ebbed, in a sign of deeper bursting in the economy from an intensifying trade war with the United States.

FILPHOTO: An employee cuts steel rods at a railway construction site in Lianyungang, Jiangsu Province, China, September 1[ads1]2, 2015. REUTERS / China Daily

The Official Purchasing Managers' Index (PMI), released Wednesday, fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September. It was a sign of the 50-mark mark that separates the contraction growth for a 27 straight month.

Analysts surveyed by Reuters had expected the official meter, which gives global investors their first look at business conditions in China at the beginning of the last quarter of the year, will dip a little to 50.6 a month.

The last reading suggests a further brake in the world's second largest economy and could provide greater political support from Beijing on top of a number of new initiatives.

A production subindex fell to 52 in October from 53.0 in September, while a new order subindex fell to 50.8 from 52.0.

New export orders, an indicator of future activity, entered a fifth straight month and at the fastest pace for at least one year. The sub-index fell to 46.9 from 48.0 in September.

China's exports were unexpectedly kicked into higher equipment in September, mainly as companies with frontloaded shipments to dodge rigid US duties, even though analysts see pressure building in the coming months. The continued decline in export orders can carry that scenario out.

October is the first full month after the latest US tariffs came into force. Washington and Beijing beat additional tariffs on each other's goods on September 24, and US President Donald Trump has threatened to hit China with several duties.

China's economy grew at its weakest pace since the global financial crisis in the third quarter, as production production and infrastructure investments were reduced. Analysts believe that business conditions will get worse before they get better.

Companies are already faced with the pressure on earnings. A survey over the weekend showed growth in the country's industrial power plant cooled for the fifth consecutive month in September on the back of a major decline in production and sales.

China's manufacturing sector has been pushed by a reduction in source of credit among Beijing's multi-year corporate debt crash and risky lending practices, unless businesses are particularly under stress.

Premier Li Keqiang said last month that the country's economy is facing increasing downturn and promised to take targeted measures to prevent major fluctuations in growth.

Politicians have already changed their priorities to reduce the risk of growth. Earlier this month, China's central bank announced the fourth reserve requirement (RRR) cut this year, and is expected to ease monetary policy further.

It also increases the traits of lower funding costs and pledges more support for private businesses, a key source for jobs.

On the financial side, the government is also strengthening its stimulus through infrastructure projects, and has also pledged several tax burdens next year to support growth.

Another sister survey published by NBS on Wednesday showed that China's service sector growth is moderating in September, with the official non-production purchasing manager's index (PMI) falling to 53.9 from 54.2 last month.

Reporting of Lusha Zhang, Stella Qiu and Ryan Woo

Our Standards: Thomson Reuters Trust Principles.

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