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China factory output falls for 4th month as US-China trade row simmers

THE Purchasing Managers' Index (PMI) dropped to 49

China factory output falls for 4th month as US-China trade row simmers

THE Purchasing Managers' Index (PMI) dropped to 49

04 September 2019 - 19:00

THE Purchasing Managers' Index (PMI) dropped to 49.5 in August, compared to 49.7 in July, according to data released by China's National Bureau of Statistics. The 50-point mark separates growth from contraction on a monthly basis.

Factory activity in China contracted in August for the fourth consecutive month as the US ramped up trade pressure and domestic demand remained sluggish, pointing to a further slowdown in the world's second-largest economy, reported Reuters.



Persistent weakness in China's enormous manufacturing sector could drive expectations that Beijing needs to roll out stimulus more quickly and aggressively, to ride out the more serious downturn in decades, as well as keep GDP growth from sliding below six per cent this year.



The official factory gauge showed that mounting trade frictions with the US and a slowdown in global demand continued to wreak havoc on China's exporters.



Export orders fell for the 15th month in a row in August, albeit at a slower pace, with the sub-index picking up to 47.2 from July's 46.9.



Total new orders - from home and abroad - also continued to drop, showing that domestic demand remains soft, despite a spate of growth-boosting measures over the past year.



'Frontloading of exports to the US ahead of higher tariffs supported trade and overall activity growth, but this effect will likely fade in the next few months,' said analysts at Goldman Sachs in a note.



Manufacturers in consumption-oriented industries such as the auto sector have been especially vulnerable. Carmakers such as Geely and Great Wall have reduced expectations for sales and profits.



The data showed activity at medium- and small-sized firms contracted, even as large manufacturers, many backed by the government, managed to expand in August.



The August PMI decline 'indicates downward pressure on the economy,' China Federation of Logistics and Purchasing analyst Zhang Liqun said.



Most analysts are highly doubtful of an end to the US-China trade dispute any time soon, and some have cut growth forecasts for China in coming quarters, Reuters said.



However, sources told Reuters before the latest trade escalations that big benchmark rate cuts were considered a last resort, as policymakers worry that could fuel a further build-up in debt and squeeze bank's profit margins, heightening financial sector risks.


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