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Home / Business / China's factory activity shrinks in the fourth month as trade growth deepens

China's factory activity shrinks in the fourth month as trade growth deepens



Workers mount TVs on Tianle Group Co., Ltd. production line July 3, 2012 in Shengzhou, Zhejiang Province, China.

Feng Li | Getty Images

China's manufacturing activity fell in August for the fourth consecutive month as the United States increased trade pressure and domestic demand remained slow, pointing to a further slowdown in the world's second-largest economy.

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

The Purchasing Leaders Index (PMI) dropped to 49.5 in August, China's National Bureau of Statistics said on Saturday, versus 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 the PMI for August to remain unchanged from last month. [1

9659002] The official factory meter showed increasing trade frictions with the US and cooling global demand continued to destroy China's exporters.

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

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

"Pre-load 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 that, like 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 large companies, although large manufacturers, many supported by the government, managed to expand in August. [19659002] The factories continued to throw jobs in August amid the uncertain business prospects. The sub-index for employment fell to 46.9, compared with 47.1 in July.

Increases

August saw dramatic increases 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 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 are set to take effect 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 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 of the 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 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.

But 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 continued to be dampened despite previous pumping measures, 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 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 backed by Chinese consumers' rising wages and strong spending power in recent years. However, the sector softened late last year amid a major downturn.


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