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China slowdown continues with factory gauge down to 2016 level

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A gauge of China's manufacturing industry weakened in December, underscoring concerns over the slowing domestic economy and the possibility of a lengthy trade war.

[BEIJING] A gauge of China's manufacturing industry weakened in December, underscoring concerns over the slowing domestic economy and the possibility of a lengthy trade war.

The manufacturing purchasing managers index (PMI) fell to 49.4, falling below 50, which is the line between expansion and contraction, for the first time since 2016

The gauge of new orders for export, which gives an indication of future demand, was 46.6, down from 47 last month.

The non-manufacturing PMI, which reflects activity in the construction and services sectors, rose to 53.8 from 53.4

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"This survey has been the most sensitive to the trade war with the U.S. and more broadly softer global and domestic conditions," Moody's Analytics Inc economists led by Katrina Ell wrote in a note dated Dec 21. "We expect further overall softening in December, as local stimulus has had only a modest lift on domestic demand and the pause button was not pressed on the trade war until early December."

The US agreed to postpone a tariff hike on $200 billion of imports from China until March 1 as both sides try to strike a deal over issues such as the alleged theft of intellectual property and technology, trade barriers, and the trade deficit.

The weak result comes after data showed the slowdown deepening in November, with industrial production growth the weakest in a decade and industrial profits falling for the first time in almost three years. Yet there are some signs of stimulus starting to take effect, with fixed-asset investment rebounding and the surveyed jobless rate improving marginally.

More government support, including looser monetary policy, more cuts in taxes and fees, and investment to upgrade manufacturing, are expected in 2019, according to the top government planning meeting meeting this month.

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