China manufacturing sector stable in April but exports slow
With global growth now past its peak, foreign demand is cooling and likely to soften further, says economist
Beijing
CHINA'S vast manufacturing sector remained broadly stable in April, two surveys showed, but weaker exports point to slower growth ahead.
The official Purchasing Managers' Index (PMI) published on Monday came in at 51.4 last month, down slightly from 51.5 in March.
Meanwhile, a private version of the index published by Caixin and Markit edged up to 51.1 against 51 in March.
The Caixin PMI surveys smaller and private manufacturers compared to the official index more geared to larger state-owned firms.
Both PMIs were largely above the 50 point mark which separates expansion from contraction, but a breakdown of the data points to more turbulent months ahead as the export orders sub-index in both PMIs fell month-on-month.
"Looking ahead, we doubt this stability will be sustained for much longer given the drags on economic activity from regulatory tightening and slower credit growth," said Julian Evans-Pritchard, an economist with Capital Economics.
"With global growth now past its peak, foreign demand is cooling and likely to soften further in the coming quarters even if trade tensions can be defused," he said.
China has made curbing a structurally over-heated property sector, deleveraging local government and corporate debt and cleaning up the financial sector its priorities.
The government is also eager to clear up the country's notoriously grey skies which means shutting down scores of polluting factories in the coal and construction sectors.
The world's second-largest economy is engaged in a looming trade war with the US, which has asked China to cut its trade deficit by US$100 billion.
A US trade delegation led by Treasury Secretary Steven Mnuchin is in Beijing this week, to try and avert tensions but analysts say an agreement is unlikely. So far, the US has imposed tariffs on steel and more recently banned American companies from selling parts to Chinese telecom equipment maker ZTE for seven years.
China has also announced hefty anti-dumping tariffs on imports of US sorghum and measures on synthetic rubber imports from the US, European Union and Singapore.
A full-blown trade war could knock several percentage points off China's GDP this year.
While economic growth has remained strong for the past 18 months, analysts say weaker global conditions and trade tension will slow activity in the coming months.
China is still dependent on foreign technology for high-end industries and exports much of its production.
The export orders sub-index fell to 50.7 from 51.3 in the official PMI last month. New orders also slipped to 52.9 from 53.3.
In the Caixin PMI, the new export orders sub-index declined for the first time in 17 months in April, while manufacturers' confidence for the year ahead dipped to a four-month low. "Overall, operating conditions across China's manufacturing sector continued to improve in April. But uncertainty in exports has increased significantly, and the dependence of the Chinese economy on domestic demand is rising," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.
