China factory activity contracted in June as US trade war tariff increase in May starts to bite

Caixin/Markit Manufacturing Purchasing Managers’ Index fell to 49.4 in June from 50.2 in May, its lowest reading since January

Like official PMI released on Sunday by the National Bureau of Statistics, private survey data show manufacturing sector contracted in June

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The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 49.4, down from 50.2 in May. Photo: Reuters

Published: 11:51am, 1 Jul 2019Updated: 8:32pm, 1 Jul 2019

Chinese factory activity fell to its weakest level in five months in June, a private survey released on Monday showed, pointing to continued downward pressure on the economy due to the trade war with the United States.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), a gauge of sentiment among the country’s factory operators which tends to include more small, private sector firms, fell to 49.4, down from 50.2 in May and below economists expectations of a smaller drop to 50.1 in a Bloomberg survey.

The June reading was the lowest since January, with a number below 50 meaning the manufacturing sector contracted after having expanded in the three previous months.

The weaker-than-expected PMI private survey data followed Sunday’s official manufacturing PMI, which covers more larger and state-owned firms, and it also indicated a contraction in the sector after remaining unchanged at 49.4 in June, also below economists’ forecast, according to the National Bureau of Statistics. The official non-manufacturing PMI edged down to a six-month low of 54.2 driven by a decline in the services component.

The decline in the new orders component of both the private and official indices points toward cooling demand in China, analysts said. A renewed decline in export orders reflected the challenging external environment, analysts added.

While the trade truce agreed by Chinese president Xi Jinping and his US counterpart Donald Trump on Saturday at the G20 summit in Osaka would freeze new US tariffs on Chinese imports, the existing 25 per cent tariffs on US$250 billion of Chinese goods will remain in place.

The increase in the tariff rate on US$200 billion of those goods in early May is only just starting to be felt in the Chinese economy, with the remaining US$50 billion having already been covered by 25 per cent tariffs since June 2018.

Robin Xing, chief China economist at Morgan Stanley, said the official June PMI showed lingering tariff uncertainty in the wake of the G20 meeting would likely continue to dent corporate confidence and exert continued downward pressure on growth and the job market.