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Pekin (Reuters) – According to a private survey, factory activity in China grew at a brisk but moderate pace in May, but badysts said the slowdown in business exports to the US to avoid tariff increases masked the underlying weakness of the economy.
Manufacturers of the world's second largest economy have recently come under heavy pressure due to escalating trade disputes with the United States. An official gauge of the factories' activity last week showed that conditions were deteriorating with slowing domestic and external demand.
The Purchasing Managers Index for the Manufacturing Sector Caixin / Markit on Monday (PMI) also had only a modest expansion at 50.2, unchanged from April, and above the economists' expectations of 50.0.
While it was the third month, the index stayed above the contraction-neutral contraction of 50 mark contraction, but output growth slowed and companies were the least optimistic of production since the beginning of the survey series in April 2012.
Growth in new orders resumed in May, although the rate of expansion remained marginal. Survey respondents attributed stronger sales growth to stronger foreign demand and new product launches, as new export orders rose at its fastest pace since January, after being contracted in April.
But some also spoke of fierce competition and harsher trading conditions.
Contrary to the larger official survey of Chinese factories, the private gauge focuses primarily on more export-oriented small and medium-sized enterprises, exposing them both to the upheavals of the US-China trade war of several months and to the declining world demand.
The increase in new export orders suggests that some companies are shipping goods to the United States to avoid tariff increases that US President Donald Trump has threatened to touch again for $ 300 billion. dollars of Chinese goods, Nomura badysts wrote in a note.
However, the initial load will probably be "a short-term distortion and more serious ROI effects could follow," they said.
The Caixin study showed that factory output had increased at the slowest pace since January, and that some firms had increased production due to increased new orders, while others noted that demand was relatively moderate.
A significant part of China's economic support program aimed to keep struggling small businesses afloat, with Beijing being particularly sensitive to large-scale layoffs that could fuel social anxiety.
The survey showed that companies continued to cut jobs in May for the second month in a row in an effort to reduce operating costs, following the first increase in recruitments in March, nearly five years. and half.
Most economists believe that Beijing will have to deploy more stimulus to support growth, as expectations are focused on further reductions in the amount of liquidity held by banks in the form of reserves and budget spending.
The sudden escalation of the trade dispute between China and the United States last month has heightened fears of a further slowdown in the world's second-largest economy. Washington has imposed additional tariffs of up to 25% on 200 billion dollars (158.1 billion pounds sterling) of Chinese goods, pushing Beijing to take revenge, financial markets have experienced a torrid period on last month.
Over a one – year time horizon, companies were the least optimistic about production since the start of the series of surveys in April 2012 in May.
"The Sino-US trade dispute, restrictive state policies, weak auto market and generally subdued global demand have all been cited as key factors that could affect production in the coming year" , says a statement accompanying the Caixin investigation.
In a note to customers, Jingyang Chen, an economist from HSBC Global Research said the trade war remains a major risk for manufacturers.
"Beijing will probably double on easing for the private sector."
(Report by Yawen Chen and Ryan Woo, edited by Shri Navaratnam)
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