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Home / Business / China's factory activity shrinks for the fourth month as trade growth intensifies

China's factory activity shrinks for the fourth month as trade growth intensifies



By Roxanne Liu and Dominique Patton

BEIJING (Reuters) – China's manufacturing business shrank in August for the fourth consecutive month as the United States increased trade pressure and domestic demand remained slow, pointing to a further decline in the world's second largest economy.

Persistent weakness in China's huge manufacturing sector may lead to expectations that Beijing needs to trigger stimulation faster, and more aggressively, to weather the biggest decline in decades.

The Buying Managers & # 39; The index (PMI) dropped to 49.5 in August, China's National Bureau of Statistics said on Saturday, against 49.7 in July, below the 50-point mark that separates growth from contraction on a monthly basis.

A Reuters survey found that analysts expected August PMI to remain unchanged from last month.

The official factory meter showed increasing trade frictions with the US and cooling global demand continued to destroy China exporters.

Export orders fell for the 15th straight month in August, although at a slower pace, with the sub-index up to 47.2 from July 46.9.

Totally new orders – from home and abroad – also continued to fall, indicating that domestic demand remains soft, despite numerous growth measures over the past year.

"Frontloading of exports to the United States ahead of higher tariffs supported trade and general activity growth, but this effect is likely to fade over the next few months," Goldman Sachs analysts said in a note.

Manufacturers in consumer-oriented industries such as the automotive sector have been particularly exposed. Car manufacturers like Geely and Great Wall have lowered sales and profit expectations.

The data showed activity of medium and small companies, although large manufacturers, many government-supported, managed to expand in August. [19659012] The factories continued to throw jobs in August amid uncertain business prospects. The sub-index for employment fell to 46.9, compared with 47.1 in July.

SELECTIONS

August saw dramatic escalations in the bitter year-long Sino-US trade series, with President Donald Trump announcing early this month that he would impose new tariffs on Chinese goods from September 1, and China laid its yuan currencies greatly weakened days later.

After Beijing rebounded with retaliatory tariffs, Trump said that existing fees would also be raised in the coming months. The combined moves now effectively cover all of China's exports to the United States.

Trump said late Friday that trade parties from both sides continue to talk and will meet in September, but tariff increases on Chinese goods are set to take effect Sunday will not be delayed.

The US president had said earlier this week that China wants to reach a "very bad" deal, citing what he described as increasing financial pressure on Beijing and job losses.

But most analysts are highly skeptical of an end to the dispute at any time, and some have recently cut growth forecasts for China in the coming quarters.

The sudden deterioration in trade ties has led to speculation that China needs to take more vigorous measures to keep growth from slipping below 6% this year, the bottom end of its target range of around 6.0-6.5%.

Analysts broadly expect Beijing to cut some of its key lending rates in September for the first time in four years to stabilize growth.

However, sources had told Reuters before the latest trade escalations that large reference rate cuts were considered a last resort, as politicians worry about being able to further build up debt and squeeze the bank's profit margins and increase risk in the financial sector.

So far, Beijing has relied on a combination of fiscal stimulus and financial relief to deal with the economic downturn, including hundreds of billions of dollars in infrastructure spending and corporate tax cuts.

However, analysts note the growth in infrastructure investment has remained subdued despite previous pumping efforts, emphasizing the need for additional support.

SERVICE GROWTH

Growth in China's service sector activity picked up for the first time in five months in August, with the official figures from a separate business survey rising to 53.8 from 53.7 in August.

Beijing has relied on a strong service sector to mitigate some of the economic impact of uncertainties and slow production.

Despite a higher overall figure, activity in the real estate sector decreased, the statistics agency said in a statement.

The service sector has been backed by Chinese consumers' rising wages and strong spending power in recent years. However, the sector softened late last year amid a broader decline.

(Reporting by Roxanne Liu and Dominique Patton; Editing by Clarence Fernandez and Jacqueline Wong)


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