Asian factories slow as China-US trade conflict intensifies

HONG KONG: Manufacturing activity across Asia slowed in July, deepening concerns about the region’s economic outlook as an intensifying trade conflict between the United States and China sent shudders through their trading partners.

A survey of purchasing managers released on yesterday showed China’s manufacturing sector grew at its slowest pace in eight months in July, with new export orders suffering the worst slump since mid-2016.

Similar surveys revealed slowing activity across Asia.

Factory activity in the euro zone, where trade tensions were showing signs of easing, was expected to keep up the pace. In the United States it was seen cooling slightly, but still strong enough for the Federal Reserve to stay on track for two rate hikes this year even if it was likely to hold rates steady this week.

Last month, China and the United States slapped tit-for-tat tariffs on US$34bil of each other’s goods and another round of tariffs on US$16bil is expected in August.

US President Donald Trump’s administration, according to a source familiar with its plans, is poised to propose 25% tariffs on a further US$200bil of imports, up from an initial proposal of 10%, and a threat of tariffs on the entire US$500bil-or-so goods imported from China still stands.

Beijing has pledged equal retaliation, although it only imports about US$130bil of US goods.

China’s Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) dropped to 50.8 from June’s 51.0, broadly in line with an official survey on Tuesday.

The headline number remained above the 50-point mark that separates growth from contraction for the 14th consecutive month, but a reading on new export orders showed a marked contraction at 48.4.

“It is clear that smaller manufacturers are reducing inventories for export deliveries and production is going down,” said Iris Pang, Greater China economist at ING in Hong Kong, adding this was evidence the trade conflict was starting to bite.

“This is just the beginning. If we see tariffs on the (extra) US$200bil, whether it’s 10% or 25%, it covers almost half of exporters. It will have a wide impact.”

The mood outside China, the main trade partner for most Asian economies, is turning sour as well.

In Australia, the PMI survey posted its lowest reading in two years. There was also a slowdown in Japan, although smaller than initially estimated.— Reuters

Push factors for a rate hike: A security personnel member stands guard at the entrance of RBI headquarters in Mumbai, India. Inflation has been accelerating sharply this year, reaching 5% in June, on the back of a weak rupee and higher oil, India’s...