China’s manufacturing activity contracted for the third consecutive month in July, according to an official survey, highlighting growing tensions in the second largest economy in the world as the trade war between China and the United States affects the profits, confidence and investment of companies.
The weak reading of the manufacturing industry Wednesday, adds to the risks of global growth and explains why those responsible for the formulation of policies around the world have intensified relief measures, while others are considering doing so soon, to counteract the consequences of the frictions in international trade.
The Purchasing Managers ‘ Index (PMI) rose to 49.7 in July, compared to 49.4 in the previous month, said Wednesday the National Bureau of Statistics of China, but remained below the mark of 50 points that separates growth from contraction on a monthly basis. Analysts surveyed by Reuters had predicted a reading of 49.6.
The decline in global demand led to a reduction in export orders for the fourteenth consecutive month, according to the survey, although the sub-index rose slightly from 46.3 to 46.9 compared with 46.3 on June.
The contraction in total new orders also moderated slightly, while factory production offered a brighter note, with growth accelerating this month.
The flag officer came on the second day of the meeting of trade negotiators from the united States and China in Shanghai, its first in-person meeting since the truce of the G20 last month, while the expectations of progress remain low.
“We hope that this downward trend in manufacturing industry will continue in 2019 until trade and technology negotiations make some progress,” said Iris Pang, ING economist in Greater China.
For more than a consecutive year, the two largest economies in the world have applied tariffs of thousands of millions of dollars to the imports of each one of them, which has disrupted global supply chains and shaken financial markets. This has led central banks, from South Korea to Australia and South Africa, to lower interest rates, and the US Federal Reserve is also expected to relax on Wednesday for the first time since the global financial crisis.
Slow domestic and external demand has led to a period of months of depressed activity for Chinese manufacturers, and a sharp rise in US tariffs announced in May threatens to crush already narrow profit margins.
The survey also showed a persistent decline in domestic customer orders, and although demand conditions improved slightly, it remained worryingly weak despite a number of recent stimulus measures.
Some manufacturers have reduced the sales target this year, as customers delayed purchase orders in a approach of waiting while others have already moved their production capacity to neighboring countries to avoid the impact tariff. All this has caused Chinese factories to continue to lose jobs in July.
The pressure on the manufacturing sector and the weakening of the benefits have caused analysts to warn of a new period of tension to China before expect the growth to stabilize or recover.
The survey also showed that small and medium-sized manufacturers were worse off than last month, while activity in larger companies, many of which are controlled by the State, jumped back into expansion territory in July. This suggests that efforts by policymakers to support the private sector have not yet paid off.
So far, Beijing has relied on a combination of fiscal stimulus and monetary relaxation to support an economy that grows at its slower pace in almost 30 years, including hundreds of billions of dollars in infrastructure spending and tax cuts for businesses.
But the economy has responded slowly and business confidence remains unstable, weighing on investment.
An official survey separately showed that the activity in the services sector in China grew at its slowest rate in eight months in July, hit by the growing pressure on the economy in general, by the trade measures of the U.S., with an official reading 53.7 in July, compared to 54.2 in June.
The services growth was dragged in part by a contraction in the real estate sector, while activity in the construction sector also collapsed, indicating that the recent fiscal stimulus have yet to be translated fully into investment in infrastructure.