Trade war’s ‘bigger than imagined’ shock and China’s economic slowdown weigh on small factories

Caixin manufacturing PMI showed weaker activity in December than November, despite the US and China reaching a trade war truce that averted new tariffs

Analysts downbeat about prospect of recovery, with slowing economy and residual tariff impact providing significant risks to manufacturers

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The Caixin manufacturing purchasing managers’ index (PMI), which polls small private sector factory owners in China, fell for the first time in five months to 51.5 in December from 51.8 in November, according to data released on Thursday. Photo: Reuters

Published: 6:00pm, 2 Jan 2020Updated: 11:39pm, 2 Jan 2020

Despite a small pickup in output and export orders, the outlook for small, private manufacturers in China is overshadowed by a slowing economy and a “bigger than imagined” shock from the US trade war, economists said.

A survey of Chinese factories showed weaker activity in December than November, despite the US and China reaching a trade war truce that averted new tariffs in the last month of the decade.

The Caixin manufacturing purchasing managers’ index (PMI), which polls small private sector factory owners in China, fell for the first time in five months to 51.5 in December from 51.8 in November, according to data released on Thursday. This was also below forecasts.

Anything above 50 shows that the sector remains in growth, and December’s decline comes on the back of a three-year high in November and four months of consecutive gains.

“Subdued business confidence was a major factor behind the economic slowdown this year. As the phase one trade deal between China and the US has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilise the economy,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a financial research firm.