In a surprising development China’s manufacturing activity expanded in August after shrinking for two months as factory output grew at its fastest pace in five months. Economists polled by Reuters had expected a further dip to 49.8, with the results providing a somewhat positive surprise.
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the manufacturing sector’s operating conditions, increased to 50.4 in August from 49.9 in the previous month, edging into expansion territory.
The highly-regarded Caixin index, one of the earliest available monthly indicators showing the latest economic conditions in China, is a closely-watched indices with a reading of 50 dividing expansion from contraction.
While a positive sign, orders remain weak and business confidence is weak as the US-China trade war continues to escalate.
Export orders fell for the third month in a row and at the sharpest pace since November 2018, according to Caixin, amid slowing global demand. Both the US and China began implementing new tariffs on each other’s exports on Sunday.
China’s official manufacturing data on Saturday showed activity contracted for the fourth month in a row and by slightly more than expected. Forward-looking indicators in both surveys pointed to further weakness in the vast manufacturing sector.
“China’s economy showed signs of a short-term recovery, but downward pressure remains a long-term problem,” says Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group – a Caixin affiliate company – in a statement accompanying the survey release.
“Amid unstable Sino-American relations, China needs to step up countercyclical policies,” he said, in reference to economic support measures.
The ongoing US-China trade row saw dramatic tit-for-tat escalation in August with US President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from September, and China devaluing its currency in response.
China also retaliated with new tariffs, only to set off the US President on a Twitter tirade and ultimately imposing tariffs on all Chinese goods imported into the US as well as raising the level of some existing tariffs.
According to Reuters, the Chinese currency has lost more than 3.0 per cent of its value against the dollar since August and has weakened about 12 per cent since Washington unveiled China-specific levies in April last year. But analysts say the depreciation is giving exporters only minor relief on the back of weak global demand.