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China's plant growth weakest in more than two years, decreasing the decline in export orders

BEIJING (Reuters) – China's manufacturing sector expanded in October at its weakest pace over two years, damaged by slowing domestic…

BEIJING (Reuters) – China’s manufacturing sector expanded in October at its weakest pace over two years, damaged by slowing domestic and external demand, in a sign of deepening economic crises from an intensifying trade war with the United States.

PHILOTOOTH: A worker is cutting steel rods at a railway station in Lianyungang, Jiangsu Province, China, September 1

2, 2015. REUTERS / China Daily

Anxiety about China’s cold growth and the likely pull of the global economy has weakened the financial markets Recently, and Wednesday’s official purchasing managerial index (PMI) indicates more stress for investors over the coming months.

The official PMI – which gives global investors its first look at business conditions in China at the beginning of last year’s last quarter – fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September.

It was a touch above the 50 points that separates the growth for a 27th straight month, but underestimates the forecast of 50.6 in a Reuters vote.

The latest reading suggests a further loss of speed in the world’s second largest economy, and the deteriorating environment for businesses can lead to more political support from Beijing in addition to a series of new initiatives.

“All figures from China’s PMI emissions today confirm a broad decline in economic activity,” said Raymond Yeung, chief economist of China in ANZ, in a client’s note, adding that the terms of the private sector are “much worse” than proposed header data.

“In addition to an expected reservation requirement (RRR) cut in January, we expect future supporting policy measures to be measured. The government’s priority is to avoid financial inflation.”

New export orders, an indicator of future operations, contracts for a fifth straight month and at the fastest pace for at least one year. Sub-index fell to 46.9 from 48.0 in September.

While China’s exports have been quite resilient to a large extent as corporate frontloaded transports to avoid stiffer US customs, analysts see press construction in the coming months. The continued decline in export orders may lead to this scenario.

October is the first full month after the latest US tax rates came into force. Washington and Beijing hit additional fees on each other’s goods on September 24, and US President Donald Trump has threatened to beat China with more information.

If the United States is following its promise to raise its tariffs to 25 percent at year-end, exporters will feel more pain.

“The 25 percent duty rate will be activated in January … perhaps the weakening of new export orders in PMI is a warning sign of what will come, even if it has not been reflected in hard data,” says Julian Evans-Pritchard, Senior economist economics economist.

Global decision makers are concerned about the wider deployment of US-led protectionist policies.

Japan on Wednesday reported weak industrial output for September, partly as the trade dispute between China and the United States weighed on exports, while Korea’s factory production last shrank most over 1-1 / 2 years.


China’s PMI survey also showed that the production index fell to 52 in October from 53.0 in September, while an order rose sharply to 50.8 from 52.0, which was a sign of much weaker domestic demand.

Statistics Bureau attributed the decline in october’s manufacturing operations as a result of a week long national holiday and the challenging external environment.

More than 70 percent of US companies working in southern China are considering delaying further investments there and moving some or all of their manufacturing to other countries when the trade war bounced in profit, showed a company survey on Monday.

China’s economy grew at its weakest pace since the global financial crisis in the third quarter, as manufacturing output and infrastructure investment declined. Analysts believe that business conditions get worse before they get better.

Companies are already faced with the pressure on the result. A survey over the weekend showed that the profit growth in the country’s industrial power plants was cooled for the fifth consecutive month in September due to a greater slowdown in production and sales.

China’s manufacturing sector has been hampered by a reduction of credit sources in connection with Beijing’s multi-annual breakdown of corporate debt and risky lending practices, with smaller companies, particularly under pressure.

Policy makers have already changed their priorities to reduce the risks of growth. Earlier this month, China’s Central Bank announced the fourth reserve requirement (RRR) for this year, and is expected to further facilitate monetary policy.

It also goes ahead to lower funding costs and impose more support for private companies, an important source of jobs. In fiscal policy, government is boosting infrastructure projects and has promised more tax cuts next year to support growth.

Another sister survey released by NBS on Wednesday showed that growth in China’s major service industry was cooled in October.

However, a subindex for construction is improving in an indication that the government’s infrastructure press can catch up, analysts say.

Similarly, some economists think that Beijing may need to increase the stimulus soon.

“Beijing’s political orientation so far has been to include a credit freeze,” said Nomura analyst.

“If our more cautious opinions prove valid, growth will likely slow down to such an alarming rate in spring 2019 that Beijing may need to greatly strengthen its easing / stimulus measures at the time.”

Reporting by Stella Qiu and Ryan Woo; Further reporting of Lusha Zhang; Editing Shri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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