August 30, 2018 / 5:53 AM / 3 months ago

China August factory growth seen easing again as orders cool, tariffs stack up: Reuters Poll

BEIJING (Reuters) - Activity in China’s vast factory sector likely slowed for the third straight month in August as domestic demand remained weak and exporters faced rising uncertainties from the escalating trade war with the United States, a Reuters poll showed.

Workers inspect the production of copper cathodes at a Jinlong Copper plant in Tongling, Anhui province, China August 16, 2018. REUTERS/Stringer

While the August manufacturing slowdown is expected to be modest, it will reinforce views that the world’s second-largest economy is continuing to lose steam even as Washington readies even tougher tariffs on Chinese goods.

That is likely to prompt Beijing to roll out more growth boosting measures, adding to a spate of recent spending announcements, tax cuts and steps to lower companies’ financing costs.

The official manufacturing Purchasing Managers’ Index (PMI) is expected to fall to 51.0 in August from 51.2 in July, according to the median forecast of 37 economists in the Reuters poll. The 50-mark divides expansion from contraction on a monthly basis.

China’s manufacturing industry has been growing for two years but is now facing a triple threat — higher borrowing costs; cooling investment and consumer spending; and a potential export shock.

Indeed, the head of China’s top planning agency said on Wednesday that economy faces increasing risks in the second half of the year and policymakers need to step up efforts to hit key development goals.

China’s economic growth slowed slightly to 6.7 percent in the second quarter, still comfortably above the official 2018 growth target of around 6.5 percent but enough to put policymakers on edge as they braced for export disruptions.

Beijing has pledged to speed up infrastructure investment to stabilize growth, and is also encouraging banks to lend more to smaller firms at better rates, though they maintain that a broad campaign to reduce financial risks and debt levels remains in place.

Project approvals jumped nearly four-fold in July, but the benefits will take time to be felt, suggesting economic conditions will get worse before they get better.

Moreover, actual infrastructure spending may remain weak over the next few months as the finance ministry may be reluctant to reopen funding channels, Capital Economics Senior China Economist Julian Evans-Pritchard wrote in a note on Wednesday.

“Infrastructure spending may weaken further before it bottoms out,” wrote Evans-Pritchard.

“While we think infrastructure investment growth is overshooting to the downside and will eventually see a partial recovery, we don’t anticipate a return to the double-digit growth rates of the past few years.”

Data on Monday showed industrial profit growth slowed for a third month in July, adding to signs of slowing momentum in the economy.

Separately, a private survey on China’s factory expansion is forecast to hit a 14-month low in August.

The private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) is expected to have fallen to 50.6 in August from 50.8 in July.

The official PMI survey is due out on Friday, along with a similar official survey on services.

The private Caixin manufacturing PMI will be published on Sept. 3, and the Caixin services PMI on Sept. 5.

Reporting by Elias Glenn; Editing by Kim Coghill

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