China’s Manufacturing Sector Slows Amid Trade Tensions

• China’s Manufacturing Sector Slows Amid Trade Tensions

Chinese manufacturing sector slowed in June amid escalating trade tensions with the United States, the official data showed.

The manufacturing Purchasing Managers’ Index published on Saturday expanded to 51.5 in June, slightly below experts’ projection of 51.6 and 51.9 recorded in May. However, it remained above the 50 mark that separates expansion from contraction for the 23rd consecutive month.

The report is in line with the recent data showing credit growth, investment and retail sales have started slowing in the world’s second-largest economy amid the new credit control policy and growing trade tensions with the United States.

Guage for export orders indicated contraction for the first time since February, declining from 51.2 in May to 49.8 in the month under review.

Also, production sub-index declined to 53.6 in June from 54.1 in May, while sub-index for new orders declined to 53.2 from 53.8.

Similarly, the Purchasing Manager Index for larger-sized companies declined from 53.1 in May to 52.9 in June. Index for medium-sized companies contracted to 49.9 from 51.0. Indicating businesses have started feeling the impact of credit control measures and the intense trade war between the China and United States.

The impact of the economic crackdown on riskier lending has driven up borrowing costs in China and weighed on economic expansion, forcing the People’s Bank of China to cut cash reserve ratio for lenders in order to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.

“Domestic demand is weakening and external demand faces pressure from escalating trade frictions between China and the United States,” said Wen Bin, senior economist at Minsheng Bank in Beijing.

Also, while the yuan has declined by about 3 per cent against the US dollar in the past two weeks, experts believe the depreciating yuan will favour Chinese exports and can be used as a weapon in the dispute. A lower exchange rate could better position Chinese exports and spur demands. However, devaluation amid trade war could weigh on global stocks as investors look to curb risk exposure.