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Chinese factory activity shrinks for the fourth month with increasing trade pressure



BEIJING (Reuters) – Factory activity in China shrunk in August for the fourth consecutive month after US increased trade pressure and domestic demand remained sluggish, indicating further slowdown in the world's second largest economy.

FILE PHOTO: Worker Welds Automobile Parts in Automobile Accessories Manufacturing Workshop in Hubei, Anhui Province, China, June 28, 2019. REITERS / Stringer

Longstanding weakness in China's huge manufacturing sector may feed expectations Beijing needs to become stimulate faster and more aggressively stimulate the biggest decline in decades.

The Purchasing Managers Index (PMI) fell to 49.5 in August, the Chinese National Bureau of Statistics reported on Saturday against 49.7 in July, below the 50-point mark, which separates growth from contraction on a monthly basis.

A Reuters poll found that analysts expect the August PMI to remain unchanged from the previous month.

The official factory gauge shows increasing trade friction with the US, and chilling global demand continues to plague Chinese exporters.

Export orders fell for the 15th consecutive month in August, albeit at a slower pace, with the sub-index rising to 47.2 from July 46.9.

Overall, new orders – from home and abroad – also continued to decline, indicating that domestic demand remained soft, despite the difficulties of growth stimulus measures in the last year.

Manufacturers in the consumer-oriented industry such as the automotive sector are particularly vulnerable. Car manufacturers such as Geely ( 0175.HK ) and Great Wall ( 601633.SS ) have lowered sales and profits expectations.

Data show the activity of medium-sized and small firms contracted, even as large producers, heavily backed by the government, were able to expand in August.

Factories continued to create jobs in August amid uncertain business prospects. The employment sub-index dropped to 46.9 from 47.1 in July.

EXCLUSIONS

August marked dramatic escalations in the bitter annual China-US trade battle, with President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from September 1 and China release its yuan currency sharply weakens days later.

After Beijing backs out on rewards tariffs, Trump said existing levies will also be increased in the coming months. The combined moves now effectively cover all of China's exports to the United States.

Both sides indicated this week that they are discussing another round of personal talks next month, hoping there is still room for de-escalation.

Trump said on Monday that China wants to reach an agreement "very bad", citing what it described as increasing economic pressure on Beijing and job losses.

But most analysts are highly doubtful about the end of the dispute any time soon, and some have recently lowered China's growth forecasts over the coming quarters.

China's services sector business grew for the first time in five months in August, with official business survey data rising to 53.8 from 53.7 in August.

Beijing relies on a strong services sector to mitigate some of the economic impact of trade uncertainty and slow manufacturing activity.

However, despite the higher overall figure, activity in the real estate industry has shrunk, the statistics bureau reported.

The services sector has been suppressed by the rising wages of Chinese consumers and the steady spending power in recent years. However, the sector eased late last year amid wider delays.

Report by Roxan Liu and Dominic Patton; Editing by Clarence Fernandez

Our Standards: Thomson Reuters Trust Principles.

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