Job-creating small firms need support to weather pressure of trade dispute with US

South China’s Guangdong Province, one of the nation’s leading industrial areas, is having a hard time combating downward pressure in its manufacturing sector. Amid escalating trade friction with the US, maintaining industrial growth momentum should be a top priority for the Chinese economy.

Guangdong’s purchasing managers index (PMI), a gauge of performance in the manufacturing industry, fell to 49.3 in August, sinking below 50 for the first time since March 2016. A reading above 50 indicates expansion and one below that level signals contraction.

The sub-index for new orders fell to 48.7 in August from 50.4 in July, declining for the second straight month, according to the official data. Amid escalating trade tensions, Guangdong’s manufacturers are grappling with sluggish external demand at a time when domestic demand also appears to be cooling.

Although China’s national PMI, which stood at 51.3 in August, indicated that the country’s manufacturing sector was generally expanding, the pace of growth in some sectors has slowed. Official statistics showed industrial added value in some coastal cities such as Shenzhen, Ningbo and Qingdao had declined by various degrees in July.

A string of recent indicators suggest China’s economy faces increased downward pressure. We cannot be blindly optimistic about China’s economy and the situation is complex.

Amid escalating trade friction, the biggest victim of the US tariffs is China’s manufacturing sector.

The Trump administration said in July it will pay up to $12 billion to help US farmers weather a growing trade war. China should also give special attention to its manufacturing sector, especially small and medium-sized enterprises (SMEs) in coastal areas.

In August, China’s PMI for large manufacturers stood at 52.1, while the figure for small enterprises stood at only 50. Although the country has made some breakthroughs in the research and development of cutting-edge technologies such as microchips and 5G telecoms networks, labor-intensive industries – where most low-end small manufacturers are clustered – is having a hard time amid the Sino-US trade tensions.

There is broad agreement that SMEs play a significant role in creating new jobs in emerging economies. As China has a large population, the country must enhance the competitiveness of its SMEs and maintain their vitality.