China factory sector hurt in September as trade frictions bite
BEIJING: Growth in China’s manufacturing sector sputtered in September as both external and domestic demand weakened, two surveys showed yesterday, raising the pressure on policymakers as US tariffs appear to be inflicting a heavier toll on the Chinese economy.
A private survey showed growth in the factory sector stalled after 15 months of expansion, with export orders falling the fastest in over two years, while an official survey confirmed a further manufacturing weakening. Taken together, the business activity gauges the first major readings on China’s economy for September - confirm consensus views that the world’s second-largest economy is continuing to cool, which is likely to prompt Chinese policymakers to roll out more growth-support measures in coming months.
“We should make policy preparations as the external pressure on the economy is rising and it will increase further next year,” said Tang Jianwei, senior economist at Bank of Communications in Shanghai. Some cushion for the slowing economy might come from services, which account for more than half of China’s economy. The official non-manufacturing Purchasing Managers’ Index (PMI), released by the National Bureau of Statistics yesterday, showed services expanded at a faster rate in September. For manufacturing, the official index fell to a seven-month low of 50.8 in September, from 51.3 in August and below a Reuters poll forecast of 51.2. That index has stayed above the 50-point mark, which divides expansion from contraction, 26 straight months.
But the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell more than expected to 50.0 from 50.6 in August. Economists polled by Reuters had forecast 50.5 on average. For the private survey, September was the first time China’s factories had not seen business improve since May 2017, when activity contracted.
Shrinking export orders
The official data covers a much larger number of companies, while the private poll focuses more on small and medium-sized firms, which are vital to China’s job creation. Chinese officials have pledged to prevent extensive job losses as trade risks mount.
In the Caixin survey, new export orders - an indicator of future activity - contracted at the fastest pace since February 2016, with companies attributing the shrinking orders to trade frictions and subsequent tariffs. In the official survey, the new export orders sub-index fell to 48.0 from 49.4 in August, contracting for a fourth straight month. “Expansion across the manufacturing sector weakened in September, as exports increasingly dragged down performance and continued softening demand began to have an impact on companies’ production,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group. “Downward pressure on China’s economy was significant,” said Zhong. Tang of Bank of Communications said he expects China’s economic growth to slow to 6.6 percent in the third quarter from 6.7 percent in April-June. —Reuters