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China's factory activity seen contracting for fifth straight month - Reuters poll

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By Reuters
China's factory activity seen contracting for fifth straight month - Reuters poll
FILE PHOTO: Employees work on a production line manufacturing camera lenses for cellphones at a factory in Lianyungang, Jiangsu province, China April 30, 2019. China Daily via REUTERS   -   Copyright  CHINA DAILY(Reuters)

By Stella Qiu and Ryan Woo

BEIJING (Reuters) – China’s factory activity is expected to have contracted for a fifth straight month in September, a Reuters poll showed, adding to the country’s economic woes as Beijing remains locked in an escalating trade war with the United States.

The official Purchasing Managers’ Index (PMI) for September is expected to remain flat at 49.5 from August, according to the median forecasts of 22 economists, below the 50-point mark that separates expansion from contraction on a monthly basis.

The continued downturn in manufacturing activity points to further weakness in the world’s second-biggest economy, fuelling expectations the authorities will have to roll out more stimulus measures to avert a sharper slowdown.

There is significant risks to growth, given sluggish consumption, rising export pressures and restrained policy stimulus from the government so far. The central bank’s move to cut its new one-year benchmark lending rate for the second month in a row this month was seen as a response to poor data.

Growth in China’s industrial production in August fell to its weakest in 17-1/2 years while exports tumbled amid spreading pain from a trade war with the United States and softening domestic demand.

Analysts expect growth could cool further this quarter from a near 30-year low of 6.2% hit in April-June.

Even though Beijing has started to buy more farm products from the United States in the latest goodwill gesture, the nearly 15-month trade war between the world’s two biggest economies has shown no signs of ending.

Top U.S. and China trade negotiators are expected to meet in Washington in about two weeks to determine if they can start to chart a path out of the bruising trade war or are headed for new and higher tariffs on each others’ goods.

The current economic weakness is primarily driven by the slowdown in the manufacturing sector which saw double-digit on-quarter deceleration in revenue, profits and sale prices, according to a third-quarter survey of thousands of Chinese firms by China Beige Book International (CBB) published this week.

That was despite borrowing at the highest level nationally for a second consecutive quarter.

“Either the sector as a whole is in clear distress or a large proportion of firms should be failing,” the CBB said in the report.


The People’s Bank of China (PBOC) is in no rush to follow other countries in significantly loosening monetary policy but has ample options to help prop up slowing growth, its governor said earlier this week, suggesting a cautious approach to stimulating growth.

Last week, the PBOC’s cut to its new one-year benchmark lending rate was far smaller than easings by the U.S. Federal Reserve and the European Central Bank.

Despite repeated statements from Chinese officials that Beijing’s options to cope with the slowdown are still ample, some analysts say the room for policy easing has become quite limited as debt concerns mount and investment returns fall.

“We believe markets have been placing too much confidence in the speed, scale, scope and efficacy of Beijing’s stimulus measures,” said Nomura analysts in a note on Wednesday.

“Conventional easing measures may not be able to solve many of the problems resulting from the non-market-based policy measures and interventions imposed on the economy over the past several years.”

A private business survey – the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) – which focuses more on small-and medium-sized Chinese firms – is expected to show factory activity expanded for the second straight month in September, although at a slower pace, in contrast with the official gauge.

The reading is forecast to edge lower to 50.2 from 50.4 in August.

The official PMI and its sister survey on the services sector, along with the Caixin manufacturing PMI, will be released on Monday.

The Caixin services PMI survey will be out on Oct. 8.

(Editing by Jacqueline Wong)