China business outlook drops to lowest level on record amid US trade war, May’s Caixin PMI report shows
- ‘Subdued expectations’ among manufacturing and service-sector companies for the year ahead, according to latest Caixin Purchasing Managers’ Index
- Combined index on current conditions also fell from 52.7 in April to 51.5 in May led by drop in the service sector, while manufacturing remained stable
Combined expectations among Chinese manufacturing and service-sector companies for the year ahead – particularly smaller, private-sector firms – dropped to the lowest level on record in May as the escalating US-China trade war eroded firms’ confidence, according the latest Caixin Purchasing Managers’ Index published on Wednesday.
The future outlook among manufacturing firms alone weakened to it lowest level since April 2012 when the series began, while service providers remained the least confident in the outlook for the economy and their businesses since July 2018, according to the index.
“Subdued expectations were often linked to the ongoing China-US trade dispute and relatively subdued global demand conditions,” said the section of the report specifically relating to future outlook.
The Caixin Composite Index, which focuses on current conditions in both the manufacturing and service sectors, dropped from 52.7 in April to 51.5 in May, but remained in expansionary territory, signalling further growth in the Chinese economy. The May decline was much larger than expected by analysts.
The decline in the composite index was due to a weaker service sector, which dropped sharply from 54.5 in April to 52.7 in May, while the manufacturing index remained stable in May at 50.2.
“The divergence in the two PMI readings reflects the fact that the two PMI surveys cover slightly different industries and sample size. Both PMI readings suggest that while business activity across the service sector remained expansionary, demand growth has slowed and business confidence has weakened in May,” said Chen Jingyang, an economist with HSBC.
“Although we expect domestic demand growth to remain robust this year on the back of a series of stimulative fiscal and credit policies, the re-escalation of trade tensions between China and the US may have negatively affected business sentiment on the ground. We believe that Beijing is likely to stay on the course of fiscal stimulus and targeted credit easing in order to counter the external headwinds.”
The weaker business conditions also put a dent in employment with the Caixin PMI employment subindex falling into contraction in May, implying increased pressure in the labour market particularly among small and medium sized companies, which account for a majority of the nation’s employment.
This trend has clearly caused concern at the State Council, which last month formed a new task force comprised of dozens of top officials to work out ways to stabilise employment amid the trade war.