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Home / Business / Factory activity in China in June is shrinking unexpectedly as the trade war weighs: Caixin PMI By Reuters

Factory activity in China in June is shrinking unexpectedly as the trade war weighs: Caixin PMI By Reuters




© Reuters. FILE PHOTO: An employee works at the Maanshan steel and iron factory in Hefei

BEIJING, July 1 (Reuters) – China's factory output shrank unexpectedly in June as domestic and export demand faltered, as did a private sector survey on Monday revealed

The downside suggests that the world's second largest economy is still losing momentum despite strong support last year, underscoring the urgent need for further incentives.

US and Chinese leaders agreed on the G20 summit in Japan this weekend to resume trade talks, which gave cause for optimism Economic problems are likely to continue.

Caixin / Markit Manufacturing PMI for June was 49.4, the worst since January and below 50.0 economists' expectations.

It was the first time in four months that the strong The observed index has fallen monthly below the neutral 50-mark mark, which separates the expansion from the contraction.

The survey results were in line with an official factory activity measurement published on Sunday that showed that production was shrinking faster than expected.

"China's economy came under renewed pressure in June," wrote Zhengsheng Zhong, director of macroeconomic analysis for the CEBM group, in a letter accompanying the data.

"It is crucial for policymakers to push anti-cyclical policies," he said.

Factory production and new orders both declined for the first time since January. Some companies claimed to have ceased production due to trade disputes.

Business confidence had dropped to its lowest level in more than seven years. and manufacturers cut jobs for the third month in a row.

The Caixin Incoming Sub-Index, which measures the number of new hires at home and abroad, fell sharply from 50.7 in the previous month to 48.8.

The trade war between the US and China is on the rise as the dispute intensifies and enters its second year. As a result, supply chains are disrupted, financial markets are mixed up, and many companies are discouraged from making new investments.

Tensions between the world's two largest economies escalated sharply in May as talks over a comprehensive deal collapsed, as Washington accused Beijing of failing to honor its reform pledges. Both sides raised the tariffs on each other's goods and the White House threatened even more.

However, Chinese politicians were also confronted with considerable weaknesses at home.

While US-China tariffs are likely to hit export-oriented Chinese companies hardest, the PMI survey indicated domestic orders. Customers cooled faster in June than new business from abroad.

This despite a sustained economic support program that began early last year, ranging from higher infrastructure spending to tax cuts, to a series of measures to keep small businesses alive.

] While new orders declined in exports, pointing to another factory weakness in the third quarter, the decline was moderate.

According to Zhong of the CEBM Group, this may be due to a rush by Chinese companies to ship goods to the US before further duties are imposed. Similar frontloading has kept China's overall export growth relatively stable for most of last year, before plummeting in the fourth quarter.

Faced with the looming and ever more expensive trade war, many economists believe that Beijing needs to be introduced. Further impetus to reaching the 201

9 economic growth target of around 6 to 6.5 percent.

Market expectations focus on further cuts in cash holdings as reserves and on even higher budgetary spending, although some Chinese observers also expect the central bank to cut one or more of its key interest rates to lower corporate borrowing costs.


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