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As Trade Increases, China’s Factory Work Decreases


As the United States continues to increase trade pressure on China, the latter’s factory activity significantly decreased for four months in a row. The shrink in China’s work activity may also attribute to the continuous sluggish progression of domestic demand. The world’s second-largest economy faces a path of a further slowdown.

The pressure on Beijing goes on as there is a continuous and persistent weakness regarding China’s manufacturing district. Beijing needs to start quickly and aggressively rolling out a stimulus to begin changing the most significant economic downturn in years.

According to China’s National Bureau of Statistics, the Purchasing Managers Index (PMI) of the country decreased down to 49.5 last Saturday from 49.7 last July. This decrease shows a less than fifty point mark that splits growth from contraction in a month.

Analysts, according to a Reuters poll,  are hoping the PMI for August remains unchanged compared to previous months. The continued increase in trade pressure and a decrease in domestic demand is slowly taking a toll on China’s exporters.

The demand for exports lowered for fifteen straight months. In August, statistics showed a slower pace in falling export orders, with a sub-index of 47.2 compared to July’s 46.9.

Despite the efforts to increase the domestic demand, the total new orders continued to lower. According to analysts at Goldman Sachs, the exports that underwent frontloading even before the implementation of tariff by the United States helped the economy. There is growth in activities, and trade is supported and sailing smoothly. Unfortunately, analysts think that these effects cause economic growth to falter, especially in the next few months.

Known carmakers in China such as Geely (0175.HK) and Great Wall (601633.SS) do not expect an increase in sales and profits because of what’s happening. The decrease in demand is taking a toll on other car manufacturers of the country as well, making their sales vulnerable.

Statistics and data showed activity at medium- and small-sized firms despite the large firms receiving help from the administration, managed to increase in August.

As mentioned, the job sub-index decreased to a level of 46.9 in August from 47.1 last July. The factories resumed work removal despite the unknown outlook in business.

As the United States President Donald Trump announces his plan on implementing tariffs on Chinese goods starting September 1, substantial escalations occurred in the Sino-U.S trade. In line with the tariff implementation, China’s yuan currency shows a sharp decrease in value, further weakening in the next few days.

Despite Beijing’s efforts to hit back at tariff’s implemented by Trump, the U.S President further states that levies also increase in the next few months. The decision to change tariff levels and taxes effectively take place regarding China’s exports to the United States.

The U.S. President stated last Friday that both China and the United States are still scheduled to talk this September. The plan on increasing tariffs is always going to continue and take effect on Sunday. Trump also said that China’s eagerness to close a deal “very badly” is costing more job losses as well as an increase in the pressure on the Chinese economy.

Because of the recent rift between the two countries, analysts are stopping any growth forecasts in the coming months. The fast decrease in the two country’s trades created theories about whether China should present more aggressive plans to continue economic growth. So far, China’s economic growth fell behind 6% this year, which is the lower end of the country’s target range of 6.0-6.5%.

Many expect Beijing to ease the lending rates for the first time this coming September just so the country can achieve economic stabilization and growth. On the other hand, other sources state that massive benchmark rate cuts should be the last solution because of the worry that debt may increase. In addition to the increase in debt, there is a possibility of squeezing bank profit margins. This action increases the risks in financial sectors.

As of now, Beijing currently relies on both fiscal stimulus and monetary easing to get the country through the economic crisis. In line with this, the implementation of cutting taxes in hundreds and billions of dollars are taking place in different companies.

Analysts commented that despite the measures taken by China, investment growth remains depressed, which means there is still a need for additional help and support.