China’s Factory Activity at Lowest Level in Three Years

Date: Friday, March 1, 2019
Source: The Wall Street Journal

It is the latest among many signs of persisting weakness in a slowing economy

BEIJING—Activity in China’s critical manufacturing sector fell to its lowest level in three years in February, weighed on by weak global demand and the long Lunar New Year holiday.

China’s official manufacturing purchasing managers index in February dropped to 49.2 from 49.5 in January, data from the National Bureau of Statistics showed Thursday.

February’s reading, the lowest since March 2016, came in worse than economists expected and is the latest among many signs of persisting weakness in a slowing economy.

While the Lunar New Year holiday played a role in dampening factory activity in February, some economists noted that averaging out performance for the first two months of the year also showed a slowdown. On top of that, they said overall demand looks soft and government measures to stimulate activity have yet to show up.

“Apart from holiday impacts, sluggish demand may have affected production as well,” said Hunter Chan, an economist at Standard Chartered . Further weakness in March would be an alarming sign, he said.

For three straight months, the headline index has stayed below the 50 mark that separates expansion from contraction.

A component measuring new export orders—an indicator of external demand for Chinese goods—decreased to 45.2 from 46.9 in January. February’s reading of the subindex is the lowest since late 2011.

Demand for Chinese exports remained surprisingly strong for most of last year, as businesses sought to rush orders ahead of tariffs Washington and Beijing imposed on each other’s goods as part of their trade fight.

The two governments seem to be heading toward a resolution, with Washington agreeing to defer an increase in tariffs. This easing of trade tensions helps to boost business sentiment but it takes time to feed through to trade figures, said Mr. Chan.

Since last year, Beijing stepped up efforts to arrest a broad economic slowdown by accelerating bond issuance to spur investment and pumping more funds into the banking system. It has urged banks to lend more to smaller companies.

While the subindex measuring larger firms, which tend to be more sensitive to the government’s policy-easing measures, strengthened for the third straight month, small firms continued to struggle, the official survey of 3,000 firms showed.

Deteriorating conditions at small companies may further weigh on the country’s growth momentum and job market, said Liu Xuezhi, an economist at Bank of Communications.

“The government needs to further step up supports to small business,” said Mr. Liu. China not only needs more tax cuts and other financial support measures, it also needs more market reforms, such as giving smaller firms better market access to some state-monopolized sectors, to boost sentiment, he said.

A subindex for production fell to 49.5 in February from 50.9 in January, dropping below 50 for the first time since January 2009. However, in a sign that government’s easing measures have had some effects, the overall new orders subindex climbed to 50.6 from 49.6, suggesting a rebound in domestic demand.

Outside the country’s factory floors, business activities also weakened. The official nonmanufacturing PMI, which covers construction and service sectors, fell to 54.3 in February from January’s 54.7.

Beijing’s policy-easing measures and thawing trade tensions probably won’t be reflected in Chinese economic data until the second half, said Mr. Chan of Standard Chartered. For now, the bank predicts China’s economy to expand 6.3% in the first quarter, slightly lower than the fourth quarter’s 6.4%.


Read from the original source.