Escalating trade row between China and the U.S. affects Chinese factory expansion

Burton Mills analysts say that a recent survey showed that China’s manufacturing activity expanded at its slowest rate in more than 12 months last month as export orders decreased for a fifth consecutive month and companies were forced to let go of employees.

The analysts say the recent data indicates that China’s economy could be in for a slowdown in the coming months as the U.S. continues to impose punitive tariffs on imported Chinese goods. China will likely resort to more spending and other measures aimed at bolstering the country’s economy.

In August the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) dropped by 0.2 percent from 50.8 the month before. Although the PMI was above the 50 mark that separates contraction from growth, it was the worst reading in more than 12 months, says Burton Mills. Although productivity improved slightly, almost all the other readings were uninspiring.

The analysts state that China’s manufacturing sector continued to weaken as demand softened, and although supply was still robust, it was not possible to maintain it when demand remained weak.

The problematic employment situation will probably also affect consumption and add to the downward pressures China’s economy is now up against.

The economy was already exhibiting signs of pressure even before the trade dispute with the U.S. escalated, says Burton Mills. Borrowing costs were elevated because of debt and a crackdown on financial risks, and many companies were struggling to secure funding.

The ongoing trend of weaker export orders indicates that the trade dispute with the U.S. is beginning to take its toll, and the impact is being felt by China’s factories.