Workers in an automobile factory in Beijing. Photo: iStock

China’s economy is starting to suffer.

On Thursday, data released by the National Bureau of Statistics showed that factory activity in the world’s second-largest economy contracted to a three-year low in February.

In a snapshot of business confidence, the official Purchasing Managers’ Index revealed that export orders fell at the fastest pace since the global financial crisis, buffeted by the trade war with the United States.

The mind-numbing numbers will reinforce views that the economy is still running out of steam after growth in 2018 cooled to levels not seen since the 1990s.

“Admittedly, we are wary of putting too much weight on the official PMIs given that they have provided false signals in the past. We will have a better idea of how the economy has performed recently when the February reading of the Caixin manufacturing PMI, a better guide to cyclical trends than the official index, is published,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said.

“But for now, the official PMIs suggest that growth remains under pressure and we expect conditions to weaken further in the coming months. While there are tentative signs that credit growth is now starting to bottom out, we don’t think that will put a floor beneath growth until the middle of this year at the earliest.”

As for the figures, the PMI dropped to 49.2 in February from 49.5 last month with the 50-mark separating growth from contraction.

“Unless the trade war truly turns into an extended truce, the weakening trend may not end quickly,” Iris Pang, the Greater China economist at ING, said in a note.

A breakdown of the survey’s findings also showed that the output sub-index fell to 49.5 from 50.9 in January.

To compound the misery, manufacturers continued to cut jobs as new export orders shrank for a ninth straight month amid slowing global demand.

The sub-index also fell to 45.2, the lowest since February 2009, from 46.9 in January.

“Unless the trade war truly turns into an extended truce, the weakening trend may not end quickly,” Iris Pang, the Greater China economist at ING, said in a note. “As such, we expect March’s PMI to fall, too.”

The trade dispute continues to have a major impact on China’s economy with uncertainty still hanging over ongoing talks.

During his congressional testimony on Wednesday, US trade representative Robert Lighthizer warned that there would be no deal until China agreed to significant structural changes to its economy.

The point man in discussions also made it clear it was too early to predict the outcome, despite last week’s third-round of talks in Washington.

“We are making real progress,” Lighthizer said. “[But we need to] reach a satisfactory solution to the all-important issue of enforceability, as well as some other concerns.

“I’m not foolish enough to think there’s one negotiation that’s going to change all the practices with China or our relationship with them,” Lighthizer said. “I view this as a process.”

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