Smaller Chinese manufacturers hit hard by trade war in August, new data shows
Latest purchasing managers survey shows growth in business activity has slowed to a 14-month low
Smaller Chinese manufacturers continue to be the most vulnerable segment of the world’s second-largest economy, new data shows, with growth in their business activity slowing to a 14-month low in August amid Beijing’s drive to reduce financial risks and the trade war with the United States.
Caixin’s monthly purchasing managers survey showed that export orders shrank for a fifth straight month and employers continued to cut staff.
The Caixin manufacturing PMI, which gives weight to small and medium-sized, mostly privately owned, manufacturing firms, declined to 50.6 last month, from 50.8 in July. Figures above 50 indicate an expansion of activity in the manufacturing sector, those below 50 indicate contraction. The further above or below the 50 mark, the faster the expansion or contraction.
This result contrasted with the official purchasing managers index released on Friday, which rose 0.1 point to 51.3. The official survey, conducted by the National Bureau of Statistics, focuses on larger manufacturing firms, many of them state-owned, and the rebound suggested the government had scored some success in its effort to stabilise the economy.
Analysts said the smaller firms would continue to be weighed down by a lack of access to credit and the trade war’s impact.
The trade conflict is likely to worsen in the near term, with the US expected to impose 25 per cent tariffs on an additional US$200 billion of Chinese goods as early as this week.
“The manufacturing sector continued to weaken amid soft demand, even though the supply side was still stable … I don’t think that stable supply can be sustained amid weak demand,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a Caixin subsidiary, in a note accompanying the survey.
“In addition, the worsening employment situation is likely to have an impact on consumption growth,” Zhong said. “China’s economy is now facing relatively obvious downward pressure.”
The employment subindex showed further contraction in August, dipping to its lowest level since July last year, according to the Caixin survey.
Facing increased external uncertainty, Beijing has slowed the pace of its effort to reduce risky lending and has urged banks and local governments to increase their support for new infrastructure spending.
Projects that had been mothballed or slowed owing to funding difficulties have been given new life.
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A meeting in late July of the Politburo, China’s top decision-making body chaired by President Xi Jinping, ordered the government to take steps to stabilise investment, trade, finance and employment, with monetary easing and supplemental fiscal spending initiatives rolled out soon afterward.
Ding Shuang, chief Greater China economist at Standard Chartered Bank, said some policies had already had an initial effect, judging by the rebound of the official PMI, particularly the production subindex.
“State-owned and large firms are usually the first beneficiaries of such government-led infrastructure spending, and it will take a long time for SMEs [small and medium-sized enterprises] to feel the stimulus,” Ding said.
“Our surveys show the financing conditions for SMEs have improved slightly, mainly owing to the fine-tuning of financial policies, but their fundraising costs remain high.”
The size of the government’s stimulus would be limited, Ding said, preventing it from fully offsetting the impact of the country’s conflict with its largest trading partner. “
Its main purpose is to prevent a large fall in the growth rate, and the current level of loosening is enough to achieve [the government’s] annual target,” the economist said.
Beijing is aiming for economic growth this year of “around 6.5 per cent”. The economy grew by 6.8 per cent in the first half, giving the government some leeway to meet its full-year target.
The biggest economic headwind continued to come from across the Pacific, with both the official and Caixin surveys showing sliding export orders. The Caixin survey showed the export orders subindex contracted for the fifth straight month, the longest such stretch since the first half of 2016.
The pressure is being felt most acutely by exporters in Guangdong, the country’s most powerful economic region and the heart of its export-oriented business.
The local purchasing managers index showed its first contraction in activity in 29 months, dropping 0.9 point to 49.3 in August, according to the Guangdong provincial economic commission.
Total new orders shrank, slipping 1.7 points to 48.7, a 30-month low, while new export orders declined for the third straight month to 49.7.
“While the policy easing now under way should eventually put a floor beneath growth, the usual lags involved mean that growth will probably remain on a downward trajectory well into next year,” Julian Evans-Pritchard, a senior economist with Capital Economics, wrote in a research note.