BEIJING, Sept 2 (Reuters) - China’s factory activity unexpectedly expanded in August as production edged up, a private business survey showed on Monday, but orders remained weak and business confidence faltered as the Sino-U.S. trade war continued to escalate.
Export orders fell for the third month in a row and at the sharpest pace since November 2018, amid slowing global demand. Both Washington and Beijing began imposing new tariffs on each other’s goods on Sunday.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for August rose to a five-month high of 50.4 from 49.9 in July, after two months of contraction. Economists polled by Reuters had expected a further dip to 49.8.
The 50-point level separates contraction from growth on a monthly basis.
China’s official factory data on Saturday showed manufacturing activity contracted for the fourth month in a row and by slightly more than expected. Forward-looking indicators in both surveys pointed to further weakness in the vast manufacturing sector, reinforcing expectations Beijing will need to roll out more support measures soon.
“China’s economy showed signs of a short-term recovery, but downward pressure remains a long-term problem,” said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group in a statement accompanying the survey release.
“Amid unstable Sino-American relations, China needs to step up countercyclical policies,” he said, referring to economic support measures.
August saw dramatic escalations in the year-long Sino-U.S. trade row, with President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from September, and China letting its yuan currency fall sharply days later.
Beijing also hit back with retaliatory tariffs, but only drew further ire from Trump who then threatened to raise existing levies on virtually all Chinese goods imported into the United States.
The Chinese currency has lost more than 3% of its value against the dollar since August and has weakened about 12% since Washington unveiled China-specific levies in April last year. But analysts say the depreciation is giving exporters only some modest relief as global demand remains weak.
Confidence among Chinese manufacturers in August softened to a level that was among the lowest in the series history,
The economy stumbled more sharply than expected at the start of the third quarter, adding to expectations that Beijing needs to announce more stimulus to put a floor under sliding growth, which has cooled to near 30-year lows.
Total new orders — domestic and overseas — increased only marginally, but domestic demand showed some signs of improvement in a few areas. New business rose for consumer goods producers, but fell for intermediate and investment goods makers.
Labour market conditions improved, with the index for employment just below the neutral mark following four months of job shedding.
Average input costs fell for the first time in six months amid reports of falling raw material prices, helping to ease pressures on profit margins.
But companies also had to cut their selling prices for the second month running to win sales, with the rate of discounting the steepest since late 2015. Producer prices fell for the first time in three years in July, stoking worries about deflationary pressures.
So far, Beijing has relied on a combination of fiscal stimulus and monetary easing to weather the slowdown, including hundreds of billions of dollars in infrastructure spending and tax cuts for companies.
But investment has been slow to respond amid increasing uncertainty over the economic outlook, and many analysts believe further policy support is needed to prevent a deeper downturn.
They widely expect some key policy lending rates will be trimmed starting this month, especially after the launch of long-awaited rate reforms.
China unveiled measures on Tuesday to help boost consumption, including the possible removal of restrictions on auto purchases, though details were sketchy. (Reporting by Stella Qiu and Se Young Lee)