Production activity in China dropped to 2-year low after domestic demand weakened. This is clear from the official data submitted on Wednesday, which increase pressure on Beijing to maintain economic growth amid a trade war with Washington.
The PMI of the National Bureau of Statistics fell to 50.2 points from 50.8 points on a 100-point scale where data above 50 showed an increase in activity.
The export orders fall, but cooling domestic demand is most affected. The sales of cars and real estate declined after Beijing tightened its lending control last year to curb the debt boom.
Short-term economic pressure is relatively high. Beijing needs to cut taxes, ease loan restructuring, and take other steps to boost private sector confidence
Chinese exports to the US have been unexpectedly sustainable since the first phase of импорт duties imposed by Donald Trump. Part of this is due to the fact that exporters hurry to meet their orders prior to the increase in customs duties. But manufacturers of higher value added goods, such as factory and medical equipment, are confident they can maintain their US market share even at higher prices.
The monthly measure for new orders decreases by 1.2 percentage points to 50.8 points. The index for new export orders declined by 1.1 percentage points to 46.9 points.
The report does not give details of demand for Chinese goods from the United States, but exports to the United States increased by at least 13%.
The impact of customs duties could “become more significant” if companies start shifting supply chains outside China to avoid higher US duties.
Chinese economic growth in the three months ending in September slowed down to 6.5% compared with a 6.7% increase in the previous quarter. This is the slowest pace since the beginning of 2009.
The relative strength of the Chinese economy has allowed President Xi Jinping to reject the pressure for changes to initiatives such as Made in China 2025 that require the creation of champions in robotics and other technologies. Washington, Europe and other trading partners claim that these plans violate Beijing’s market opening obligations.
The International Monetary Fund and other organizations expect economic growth this year to fall to about 6.5% from 6.8% in 2017.
Beijing has stepped up credit control last year to curb rising debt. But the cut was unexpectedly sharp, which led the ruling party to change the course and bring more money into the economy by lightening control over loans and increasing public spending on public affairs.