Workers tend to pots of soy sauce at a Chinese traditional fermented soy sauce factory in Chongqing.

The Bad News on China’s Economy Gets a Little Better This Month

par Featured articles licensed from The Wall Street Journal | le 30 September 2019


Official gauge of factory activity improves in September, but remains in contraction territory

 

BEIJING—Gauges of China’s manufacturing activity rebounded in September thanks to improving domestic demand, but orders from overseas markets remained subdued amid a protracted trade fight between Beijing and Washington.

Economists say the improvement in both official and private gauges of factory activity is unlikely to mark a turnaround from the deepening slowdown in the industrial sector, as the world’s second-largest economy continues to struggle with sluggish global demand and hefty debt levels.

China’s official manufacturing purchasing managers index rose to 49.8 in September from 49.5 in August, the National Bureau of Statistics said Monday. This is the fifth straight month that the index has stayed below the 50-mark, indicating a contraction in activity. The reading, however, was above the median forecast of 49.6 of 11 economists polled by The Wall Street Journal.

A subindex measuring total new orders rose above the 50-mark for the first time since May as domestic demand increased. New export orders improved, but remained in contraction territory.

“The rebounds in PMIs dovetailed with eased tension between the U.S. and China in their trade talks [and] were supported by China’s efforts to lower taxes for manufacturers,” said Tommy Xie, an economist with OCBC.

Earlier this year, China announced a plan to cut taxes and fees by a total of 2 trillion yuan ($280.8 billion) in 2019 for businesses and consumers. Finance Minister Liu Kun said last week that the manufacturing sector has gotten 31% of the reductions given in the first seven months, making it the biggest beneficiary of the plan so far.

Despite the encouraging signs in September, China’s economy is still facing uncertainties in trade talks and a cooling domestic real-estate market, economists say.

The Caixin China manufacturing PMI, a private gauge of factory activity, showed a strong rebound in the headline figure for September, but pointed to a continued reduction in new export orders. Manufacturers say the trade dispute with the U.S. has damped their foreign sales.

Chinese Vice Premier Liu He is going to the U.S. to resume talks after the weeklong National Day holiday that starts Oct. 1, the Commerce Ministry confirmed Sunday. Chinese negotiators are likely to narrow the scope of their talks to get a mini-deal and put thornier national-security issues on a separate track, The Wall Street Journal reported earlier this month.

Meanwhile, a pullback in China’s property sector appears to be under way, with construction activity cooling sharply in September. China’s official nonmanufacturing PMI edged down to 53.7 in September from 53.8 in August, the National Bureau of Statistics said Monday. Its subindex measuring construction activity fell sharply to 57.6 in September from 61.2 in August, while the service subindex held up well.

The property sector, including home sales and investment, has been a lone bright spot in the economy. But it has come under pressure after Chinese leaders said they wouldn’t resort to property easing as a stimulus measure. Financial regulators in recent months also have tightened financing for both property developers and home buyers to rein in speculation.

With China’s central bank preferring targeted ways to boost investment and consumption instead of massive easing measures, fiscal measures are key to shoring up growth for the remainder of the year, said Mr. Xie, the OCBC economist.

Beijing plans to front-load issuance of local government bonds later this year to fund infrastructure investment. “However, it’s unlikely infrastructure investment alone will offset the slowdowns from both property and export sector,” said Mr. Xie.