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Home / Business / China's factory activity shrinks as US tariffs, decline measures by Reuters

China's factory activity shrinks as US tariffs, decline measures by Reuters



© Reuters. Workers control a crane lifting steel pipe for export in a port in Lianyungang, Jiangsu

BEIJING (Reuters) – China's factory activity shrank more than expected in June, and an official production survey showed that more economic stimulus was needed such as US tariffs and weaker domestic demand increased the pressure on new orders for goods.

The Purchasing Manager Index (PMI) stood at 49.4 in June, China's chief statistics on Sunday, unchanged from the previous month and below the 50-point mark that distinguishes growth from contraction on a monthly basis. Analysts asked by Reuters predicted a reading of 49.5.

The weak production readings are likely to create a shadow over the seemingly progress of US and Chinese leaders made at the G20 in Japan this weekend, resuming their troubled tariff talks in the midst of a costly trade war.

They will also be worried about stall growth in China and the risk of a global recession, despite slightly better than expected export and industrial performance data in May.

Many economists still expect the economy to face strong headwinds in the coming months as domestic demand falls and external risks rise.

"Although the outcome of the G20 summit (in Osaka) may increase confidence in some entities, organic growth in the economy is still insufficient and countercyclical stimulus policies must be maintained," researchers at Huatai Securities wrote in a research note on Sunday.

"The PMI index continued to fall across the board this month, and only those commodity inventory sub-indices were up due to weak demand," the survey explains.

China's production growth delayed in June, with the sub-index falling to 51

.3 from 51.7 in May, while the total new orders increased to 49.6 from 49.8.

Export orders increased their decline with the sub-index falling to 46.3 from May 46.5, suggesting a further deterioration in global demand.

Import orders also worsen, reflecting softer demand at home despite growth of growth

Southwest Securities said weak new export orders reflected a fade of the frontload effect, which temporarily increased exports as Chinese companies rushed to place orders before several tariffs came into force.

Presidents Donald Trump and Xi Jinping held icebreaker talks at the G20 Summit on Saturday. However, Chinese state media warned on Sunday in Beijing, and Washington is likely to face a long way before the two countries could reach an agreement.

Analysts at Nomura expect that gains achieved on a temporary trade agreement between China and the United States would prove volatile with a renewed escalation likely further down the road.

Trump has already imposed $ 250 billion of Chinese goods and threatens to expand them to another $ 300 billion, which would effectively cover all of China's exports to the United States. China has retaliated with tariffs on imports from the United States.

To deal with the economic challenges, decision makers have issued a number of measures and are expected to launch more. Premier Li Keqiang last week promised to cut real interest rates on financing for small and micro companies.

Goldman Sachs (NYSE 🙂 said there were no substantial advances in Chinese-US trade talks at the G20 this weekend, suggested stimulus, including cuts in bank reserve requirements, was probably needed.

"We expect more political easing (two reserve cuts in 2H this year, more fiscal measures to support infrastructure investment) to come next months," Goldman Sachs said in a note.

Manufacturers continued to cut jobs in June. with the employment index at 46.9, versus 47.0 in May, when it hit the lowest level since March 2009.

An official business survey showed that activity in China's service sector persisted in June despite increased pressure on the wider US economy trade measures, with the official reading of 54.2 in June from 54.3 in May.

Beijing has counted on a strong service sector to retrieve slack as it attempts to shift finances away from an addiction to heavy industry and production exports. 19659023]! Function (f, b, e, v, n, t, s)
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