BEIJING (Reuters) – The Chinese manufacturing sector has just grown in October and has lost expectations, as domestic and external demand has declined, as a sign of worsening economic cracks by intensifying trade war with the US US.
PHOTO FILE: A worker cuts steel bars at a railway yard in Lianyungang, Jiangsu Province, China, September 12, 2015. REUTERS / China Daily
The official index of purchasing managers (PMI), published Wednesday, fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September. It was a touch over the 50-point mark that separates growth from contraction for a 27th consecutive month.
Analysts interviewed by Reuters had predicted the official gauge, which gives global investors the first glimpse of the conditions of the business in China at the beginning of the last quarter of the year, drop slightly to 50.6 for the month.
The last reading suggests a further slowdown in the second largest economy in the world and could stimulate greater political support from Beijing on top of a series of recent initiatives.
A sub-production index fell to 52 in October from 53.0 in September, while a new order sub-index fell to 50.8 from 52.0.
New export orders, an indicator of future activities, contracts for a fifth consecutive month and at the fastest pace in at least a year. The sub-index fell to 46.9 from 48 in September.
Chinese exports unexpectedly climbed the highest gear in September, largely as companies with frontloaded loads to avoid stiffer duties in the United States, although analysts see increased pressure in the coming months. The continued slowdown in export orders could bring this scenario to light.
October is the first full month after the latest US tariffs come into effect. Washington and Beijing slapped additional charges on their property on September 24, and US President Donald Trump threatened to hit China with more duties.
The Chinese economy grew at its weakest point since the global financial crisis in the third quarter, with the slowdown in manufacturing output and infrastructure investment. Analysts believe that economic conditions will get worse before they improve.
Companies are already putting pressure on earnings. A survey conducted over the weekend showed that the growth of profits from the country's industrial plants cooled for the fifth consecutive month in September, following a slowdown in production and sales.
The Chinese manufacturing sector has been crushed by a reduction in credit sources due to Beijing's multi-year repression of corporate debt and risky lending practices, with smaller companies particularly under strain.
Premier Li Keqiang said last month that the country's economy faces increasing downward pressures and is committed to taking targeted measures to avoid large fluctuations in growth.
Politicians have already moved their priorities to reduce the risks to growth. At the beginning of this month, the Chinese central bank announced the fourth cut of the reserve requirement (RRR) for this year, and should further ease monetary policy.
It is also stepping up initiatives to reduce financing costs and promised greater support for private companies, a key source of jobs.
From a fiscal point of view, the government is also stepping up its stimulus through infrastructure projects and has also promised further tax cuts next year to support growth.
Another sister survey published by NBS on Wednesday showed a growth in the services sector in China moderated in September, with the official non-manufacturing manager (PMI) index falling to 53.9 from 54.2% of the previous month.
Reporting by Lusha Zhang, Stella Qiu and Ryan Woo