The factories sector in China was hit in September by trade frictions

BEIJING (Reuters) – Growth in China's manufacturing sector slowed in September, after 15 months of expansion. Export orders posted the largest decline in two years, a private poll on Sunday said, suggesting that US tariffs were starting to impose a heavy toll on the Chinese economy.

A separate official survey confirmed a further weakening of China's manufacturing sector last month as domestic demand and export demand also fell, although the results of the publication still showed some growth.

Taken together, the indicators of economic activity – the first important readings on the Chinese economy for September – confirm the consensus that the second world economy continues to slow, which will prompt probably the Chinese decision-makers to apply more measures to support growth in the coming months.

The Caixin / Markit Manufacturing Purchasing Managers Index (PMI) for September fell more than expected to 50.0 from 50.6 in August. Economists polled by Reuters predicted a reading of 50.5 on average.

The 50 neutral divides the expansion of the contraction on a monthly basis. The month of September was the first time Chinese factories had not seen their business improve since May 2017, when the business contracted.

New export orders – an indicator of future activity – have contracted at the fastest pace since February 2016, as companies attributed lower orders to trade frictions and tariffs.

"Expansion in the manufacturing sector slowed down in September as exports have been steadily slowing performance and demand is still moderating, starting to weigh on business output," said Zhengsheng Zhong, director of macroeconomic analysis of the CEBM group.

"The downward pressure on the Chinese economy was important," Zhong said.

LONG COMBAT BEFORE?

The Trump administration has drawn attention to the growing signs of economic weakness in China and weakening its stock markets as evidence that the United States is winning the trade war, but Beijing remained provocative, promising to stimulate domestic demand to mitigate the effects of trade shocks.

On September 24, Washington imposed tariffs on Chinese goods worth $ 200 billion and threatens to impose duties on almost all the goods that China exports to the United States.

Plans for new trade talks have collapsed in recent weeks and both sides seem to want to wage a long struggle, glancing at the prospects for global economic growth.

The official PMI, released Sunday by the National Bureau of Statistics, fell to 51.8 in September, returning to its lowest level in seven months, up from 51.3 in August, but remains above of the bar of 50 points separating growth and contraction. 26th consecutive month.

Analysts polled by Reuters had forecast that the reading would drop to 51.2.

New export orders, an indicator of future activity, contracted for a fourth consecutive month, with the sub-index rising from 49.4 in August to 48.0.

READING THE HIGHER SERVICE SECTOR

A sister survey on the official showed a stronger reading in September for services, which rose to 54.9 from 54.2 the previous month.

This has somewhat dampened the slowdown in the economy as the services sector accounts for more than half of China's economy, with rising wages giving consumers greater purchasing power.

Although China's official export data has been surprisingly resilient so far, many analysts believe that companies have shipped shipments to the United States to bypass successive tariff series. The weakening of the decline in export orders could be at the origin of this theory.

China's export-dependent cities and provinces are already showing pressure. Guangdong, China's largest province in terms of gross domestic product, saw a drop in exports in the first eight months of the previous year.

Demand in China had already slowed down before the US trading industry exploded, as a multi-year crackdown on riskier loans and debt began to drive up corporate borrowing costs. Investment growth in fixed assets reached a record high.

In recent months, policy makers have focused on stimulating growth to cushion the economy and weather the storm. They sought to reduce financing costs, increase small business loans, reduce taxes and speed up infrastructure projects.

But analysts note that it will take time for such measures to halt the sluggish economy, with some forecasts worsening before they improve.