Badly bruised by the trade war with the United States, China’s small- and medium-sized companies struggled last month after being buffeted by a slowing economy.
Factory activity contracted for the first time in 19 months with the Caixin/Markit Manufacturing Purchasing Managers’ Index, or PMI, dropping below the 50-mark.
The private survey, which focuses on small- and medium-sized firms, showed new orders fell to 49.7 in December from 50.2 in November.
A reading above 50 indicates expansion while a figure below that signals contraction.
“External demand remained subdued due to the trade frictions between China and the US, while domestic demand weakened more notably,” Zhengsheng Zhong, the director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin, said in a media release.
“It is looking increasingly likely that the Chinese economy may come under greater downward pressure,” Zhong added.
“The slowdown will continue into next year. The weak PMI could result in more government stimulus to shore up the economy.”
Wednesday’s statistics were released just 48 hours after the official PMI, which covers the major manufacturing players, painted a depressing picture. December’s numbers dipped to 49.4 from November’s figure of 50.0.
“The slowdown will continue into next year,” Larry Hu, an economist at Macquarie Securities in Hong Kong, said. “The weak PMI could result in more government stimulus to shore up the economy.”
Last week, China’s National Bureau of Statistics revealed that industrial profits fell 1.8% to 594.8 billion yuan (US$86.33 billion) in November compared to the same period in 2017. This was the first decline since December 2015.
Overall, this has been a harrowing fourth quarter for the economy despite the trade war truce, which was thrashed out by US President Donald Trump and China’s head of state Xi Jinping at the Group of 20 summit in Buenos Aires last month.
Manufacturing activity has declined, consumer spending has shrunk and new car sales have stalled. A cooling property market has also been squeezed by tighter credit restrictions.
And more pain could be on the way.
“I do believe the economy in China is decelerating,” Alex Capri, a visiting senior fellow at the National University of Singapore’s Business School, said. “I do believe the numbers are worse than reported in that type of political environment where there’s strong censorship, where media is essentially prevented from reporting.”