September 28, 2018 / 7:27 AM / 3 months ago

China factory growth seen cooling as U.S. trade dispute intensifies: Reuters poll

BEIJING (Reuters) - China’s manufacturing sector likely resumed its slowdown in September after taking a pause in August, with exporters facing growing strains from increasingly hostile trade ties with the United States, a Reuters poll showed.

FILE PHOTO: A labourer works inside an electronics factory in Qingdao, Shandong province, China January 29, 2018. REUTERS/William Hong/File Photo

The official manufacturing Purchasing Managers’ Index (PMI) is expected to have slipped to 51.2 in September from 51.3 in August, according to the median forecast of 23 economists in a Reuters poll. The 50-mark divides expansion from contraction on a monthly basis.

As U.S. tariffs threaten to put more pressure on China’s already slowing economy, policymakers in recent months have sought to boost lending to businesses, cut taxes and fast-track big infrastructure projects.

They hope such measures will prop up growth and offset the drag from an ongoing government crackdown on riskier financing.

But analysts note it will take some time for policy support to put a floor under the slowing economy, with some predicting things will get worse before they get better.

Profit growth at China’s industrial firms slowed to a five-month low in August as demand cooled, data showed on Thursday.

“China’s economy continued to slow despite intensive policy easing and stimulus measures in recent months,” wrote Nomura analysts in a note.

“In our view, the room for Beijing to step up its conventional stimulus measures – which rely on pumping credit and ramping up infrastructure spending – is rather limited,” they said, arguing bigger tax cuts are needed to spur firms’ confidence and reduce their costs.

In recent weeks, state-controlled media has churned out editorials assuring the public that despite the pressure on the economy, steady consumption and infrastructure investment will keep risks in check.

China says the diversification of overseas markets will also help exporters counter the trade war with the United States.

On the ground, trade-dependent cities and provinces including Guangdong in the south are already scrambling to provide relief to exporters.

Exports from Guangdong’s Zhongshan, for example, slumped 21.3 percent in the first half, with shipments to the United States diving 19 percent.

Zhongshan, at the mouth of the Pearl River Delta, is among a handful of Chinese cities that are heavily dependent on the United States for their exports and have yet to diversify their markets.

Another round of tit-for-tat tariffs went into effect on Monday, with the U.S. imposing duties on $200 billion worth of Chinese goods and retaliatory taxes by Beijing on $60 billion worth of U.S. products. Several rounds of talks have produced no breakthroughs and both sides look to be digging in for a lengthy battle.

Shipping containers are seen at a port in Lianyungang, Jiangsu province, China September 8, 2018. REUTERS/Stringer

Separately, a private survey on China’s factory activity is forecast to show a similar mild easing trend.

The private Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) is expected to have fallen slightly to 50.5 in September versus 50.6 in August.

The official PMI survey is due out on Sunday, along with a similar official survey on services, and the private Caixin manufacturing PMI. The Caixin services PMI will be published on Oct. 8.

Reporting by Yawen Chen and Ryan Woo; Editing by Kim Coghill

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