China’s factory activity has shown a decline for the seventh month in a row in October, in what may be viewed as the effects of high tariffs imposed by the US on the country’s products.
As per China’s National Bureau of Statistics report that was released on Friday, based on a survey of factory managers, the government said the official manufacturing purchasing managers index was worse than forecast, having slipped to 49 in October from 49.8 in September.
Measured on a scale between 0 and 100, a PMI reading below 50 indicates contraction.
China’s eight-day ‘Golden Week’ national holiday in October contributed to slower factory activity, said Huo Lihui, chief statistician at the Bureau of Statistics.
But a “more complex international environment” also contributed to October’s weaker data, he said.
Even though China had maintained a diverse export portfolio, its shipments to other regions, including Southeast Asia and Africa, had been growing recently. But, exports to the US dropping by double-digits for six straight months had begun to take a toll on the country’s economy.
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While the newly announced truce in the trade war between the US and China offers some hope for a stronger recovery in exports, China has already been reeling under a prolonged downturn in the property market that is weighing on consumer confidence and on investments in construction and real estate.
On Thursday, US President Donald Trump met his Chinese counterpart, Xi Jinping, and announced that the US will cut its fentanyl-related tariffs on China from 20 per cent to 10 per cent, while US tariffs on Chinese goods have been brought down from 57 per cent to 47 per cent.
A US tariff cut means Chinese exports will be able to “regain more competitiveness in the US market and we could see some recovery of direct exports to the US soon”, HSBC economist, Taylor Wang, wrote in a note on Friday.
But “despite tariff truce progress, global uncertainty continues affecting manufacturing sentiment,” said Wei Li, head of multi-asset investments at BNP Paribas Securities (China). “US-China agreements will likely prevent further deterioration rather than drive a robust recovery,” said Li.
China is now moving to reduce its reliance on investment in manufacturing that drives its massive exports, seeking to spur stronger consumer spending, while attempting to curb price wars and excess manufacturing capacity in many industries.
The ruling Communist Party highlighted those aims in documents released after a top-level meeting last week that mapped out development priorities for the coming five years. They showed that manufacturing will continue to be China’s focus, building on high-tech industries.
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