China manufacturing off to a bad start

Jeannie Matthews
February 3, 2019

But gains were capped by weak manufacturing data for China.

The official manufacturing Purchasing Managers' Index (PMI) for January was 49.5, according to the Chinese National Bureau of Statistics. The sector accounts for more than half of China's economy. The measure for stocks of finished goods fell into contractionary mode while manufacturers reduced their inventories as the sub-index for stocks of purchased items fell further.

Silk figurines on display at the 13th China Beijing International Cultural and Creative Industry Expo.

Last year, China's economy expanded at its slowest pace since 1990, with its gross domestic product rising by 6.6 per cent.

Zhong of CEBM said the pick-up was mainly due to positive sentiment from a temporary truce achieved during a meeting between President Donald Trump and President Xi Jinping in Argentina on December 1.

A non-public survey on China's manufacturing sector confirmed on Friday that manufacturing facility exercise contracted extra-than-anticipated in January - confirming views that the world's second-largest economic system began the new year on a comfortable footing.

Domestic demand had already been weakening before the United States and China in 2018 started to impose tit-for-tat tariffs on each other's exports, as a regulatory crackdown on risky lending was pushing up borrowing costs.

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Trump, speaking at the White House during a meeting with Chinese Vice Premier Liu He, said he was optimistic the world's two largest economies could reach "the biggest deal ever made".

Factory activity among smaller Chinese firms just got worse. The numbers were weaker than Thursday's official PMI survey, but both suggested the economy is continuing to slow.

Weaker demand from domestic and global customers prompted Japanese manufacturers to cut output for the first time in 2-1/2 years and to scale back purchases of raw materials and other inputs.

The January reading is the lowest since February 2016.

Not all PMI surveys were gloomy. And it was still in moderate expansion territory in Vietnam, Philippines and Thailand - where the downturn in the tech cycle weighed less than in the more advanced economies.

"Although we believe (China's) GDP growth will eventually bottom out, markets do not appear to have factored in such a sharp slowdown and may still be putting, in our opinion, too much faith in the efficacy of government support", economists at Nomura said in a recent note.

However, such supportive measures might take time to be efficient, economists stated.

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