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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



  Worker welding car parts at a workshop producing car accessories in Huaibei, Anhui
FILE PHOTO: A worker welding car parts at a workshop producing car accessories in Huaibei, Anhui Province, China June 28, 2019. REUTERS / Stringer [19659003] August 31, 2019

By Roxanne Liu and Dominique Patton

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

Persistent weakness in China's huge manufacturing sector may cause expectations that Beijing needs to trigger stimulus faster and more aggressively to weather the biggest decline in decades. [1

9659007] The Purchasing Leaders Index (PMI) dropped to 49.5 in August, China's National Statistics Bureau said on Saturday, against 49.7 in July, below the 50-point mark by separating growth from contraction on a monthly basis.

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

The official factory meter showed growing trade frictions with the United States and cooling global demand continued to destroy China's exporters.

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

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

"Pre-load exports to the US ahead of higher tariff supported trade and general activity growth, but this effect is likely to disappear over the next few months," analysts at Goldman Sachs said in a note.

Manufacturers in consumer-oriented industries that the automotive sector has Carmakers like Geely <0175.HK> and Great Wall <601633.SS> have lowered sales and profit expectations.

The data showed activity of medium and small large firms, even as large manufacturers, many government-supported, managed to expand in August

The factories continued to throw jobs in August amid precarious business prospects, the employment sub-index fell to 46.9, compared to 47.1 in July.

SELECTIONS

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

After Beijing rebounded with recurring 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 teams from both sides continue to talk and will meet in September, but tariff increases on Chinese goods should come into effect on Sunday will not be delayed.

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

But most analysts are in deep doubt about the end of 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 roll out stronger measures to prevent growth slipping below 6% this year, the bottom end of the target range of around 6.0-6.5%.

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

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

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

However, analysts note that the growth in infrastructure investment has remained subdued despite previous pumping measures, which underscore 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 corporate 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 trade uncertainties and slow manufacturing operations.

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

The service sector has been highlighted by Chinese consumers' rising wages and robust spending power in recent years. However, the sector softened late last year amid a major downturn.

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


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