China factory expansion slowest in two years, exports slump picks up speed

Marco Green
November 2, 2018

Chinese factory activity slowed in October, official data showed on Wednesday (Oct 31), adding to a growing list of bad news for the Asian giant as it struggles to maintain economic momentum in the face of American tariffs and a weakening yuan.

Another sister survey released by the NBS on Wednesday showed growth in China's service sector moderated in September, with the official non-manufacturing Purchasing Managers' Index (PMI) dipping to 53.9 from 54.2 the previous month. In contrast, the PMI for large manufacturers stood well above 50.

China's US$12 trillion-a-year economy was already cooling as communist leaders tried to steer it toward more self-sustaining growth based on domestic consumption instead of exports and investment. Earlier this month China's central bank announced the fourth reserve requirement ratio (RRR) cut for this year, and is expected to ease monetary policy further. The government's priority is to avoid a financial blow-up'. Employed person index was 48.1 percent, decreased 0.2 percentage point from last month, lower than the threshold, indicating that the manufacturing enterprises' labor employment decreased.

Among the 25 provincial-level regions of China that have so far released economic data for the first three quarters of 2018, the GDP of 15 regions ran faster than the country's national level of 6.7 percent.

Global policy makers remain anxious about the wider fallout of the US-led protectionist policies.

Sentiment in the services industry also weakened.

Japan's factory output also declined last month after a series of natural disasters, but the weakness clouds forecasts for third-quarter economic growth.

Chinese statistics bureau statistician Zhao Qinghe wrote in an analysis of the data that manufacturing activity in October was hit by long national public holidays and a "complex and variable external environment" that caused "fluctuations" in demand and supply. But producers of higher-value-added goods such as factory and medical equipment express confidence they can keep their US market share even with higher prices.

On the fiscal side the government is stepping up stimulus through infrastructure projects, and has also pledged more tax cuts next year to support growth.

"Headwinds on export growth are still looming", said analysts with Nomura International (Hong Kong) in a note.

'If our more cautious views prove to be valid, growth will likely slow to such a worrying pace in spring 2019 that Beijing may have to greatly ramp-up its easing/stimulus measures at that time'.

Other reports by Click Lancashire

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