Trade war tariffs continue to gnaw away at China’s manufacturing outlook, July data shows

01-Aug-2019 Intellasia | South China Morning Post | 6:02 AM Print This Post

China’s manufacturing industry remained weak in July, with factory owners still downbeat about their prospects, as the pressures of the trade war with the United States continued to mount.

The official purchasing managers’ index (PMI) rose slightly to 49.7 in July from 49.4 in both May and June, the National Bureau of Statistics said on Wednesday. The July result was above the median forecast of 49.6 in a poll of economists by Bloomberg.

However, it remained in contractionary territory, the fifth month of seven this year that the official PMI has been negative.

The PMI is a gauge of sentiment among factory operators, with 50.0 being the demarcation line between expansion and contraction in manufacturing activity. The figures for both May and June were the lowest since February’s 49.2, after signs of expansion in March and April.

The survey was conducted in the first month following the trade tariff truce agreed by Chinese President Xi Jinping and his US counterpart Donald Trump at their meeting at the G20 summit in Japan at the end of June. The US had earlier threatened to impose new tariffs on $300 billion of Chinese goods that were not yet subject to additional duties.

However, July was also the second full month in which the higher 25 per cent tariff rate was applied to $200 billion of Chinese exports to the US. The US raised the tariff from 10 per cent on May 10, meaning there is now a 25 per cent tariff on $250 billion on Chinese exports, tariffs that were not in effect at the time of Xi and Trump’s ceasefire deal.

The figure can, therefore, be viewed as a window into the impact of the trade war on China’s factory owners’ outlooks.

Reflecting this, manufacturers’ views on future exporting prospects were particularly gloomy in July. The gauge of export orders was 46.9, up from 46.3 in June. This was the highest reading since April, but factory owners have had a negative outlook for export orders since May 2018, the last time the reading was above 50, two months before the first US trade war tariffs on China were enacted. The outlook for new import orders also remained negative, at 47.4, however this was up from 46.8 in June.

The manufacturing PMI of textiles, metal products and general equipment is below the critical point, and the industry’s prosperity has decline

Zhao Qinghe

Zhao Qinghe, a senior statistician at the NBS, said that “manufacturing industries such as tobacco, paper printing, medicine, electrical machinery equipment and computer communication electronic equipment saw a rapid expansion”. However, he added that “the manufacturing PMI of textiles, metal products and general equipment is below the critical point, and the industry’s prosperity has declined”.

The NBS also released PMI data for non-manufacturing reflecting activity in the services and construction sectors which, despite remaining in expansionary territory, slumped to 53.7 in July from 54.2 the previous month, below expectations of 54.0. Composite PMI, a combined reading of both manufacturing and non-manufacturing, was 53.1, up from 53.0 in June.

“The latest surveys remain consistent with a renewed slowdown in growth. Downward pressure on factory activity eased this month, but momentum in services and construction weakened,” said Capital Economics, in a statement on the release.

The July figures will add to the concerns of policymakers in Beijing, who would otherwise have been buoyed by the pause in escalation of the trade war.

Recent economic figures have been almost universally poor. Industrial profits for the first six months of the year fell by 2.4 per cent.

While industrial production recovered to 6.3 per cent in June from 5.0 per cent in May, the producer price index that is, the price manufacturers charge for their goods at the factory gate, was 0.0 per cent in June from a year earlier, showing that producers are struggling to receive a strong return on the goods they make.

Exports fell 1.3 per cent in June, but imports fell 7.3 per cent in the month, suggesting domestic demand remains sluggish. Gross domestic product (GDP) for the second quarter of 2019 was the lowest reading since records began in March 1992, coming in at 6.2 per cent.


Category: China

Print This Post

Comments are closed.