China April factory growth unexpectedly slows as economy struggles for traction

10:09 | 03/05/2019 Global Economy

Factory activity in China expanded for a second straight month in April but at a much slower pace than expected, an official survey showed on Tuesday. 

Workers assemble robots at the production line of Chuangze Intelligent Robot in Rizhao, Shandong province - Photo by Reuters

The evidences suggest the economy is still struggling for traction despite a flurry of support measures.

The unexpected loss of momentum at the start of the second quarter followed upbeat data in March which had raised hopes among global investors that the world’s second-largest economy was getting back on firmer footing.

A private business survey on Tuesday also pointed to a loss of momentum, confounding expectations for a pick-up, with factories starting to shed jobs again after adding staff in March for the first time in years.

The weak manufacturing readings, along with softer construction growth, could stoke debate over how much more stimulus China needs to generate a sustainable recovery, without risking a rapid jump in debt.

The official Purchasing Managers’ Index (PMI) for manufacturing fell to 50.1 in April from March’s reading of 50.5, which was the first expansion in four months, data from the statistics bureau showed...

Shares in much of Asia fell after the data, while the Chinese yuan and the Australian dollar wilted. China’s slowdown has weighed heavily on exports of many of its trading partners and sales of multinational firms from Apple to industrial conglomerate 3M.

While the official factory survey disappointed on the growth front, it did not show a marked deterioration in business conditions, either. Output expanded at a slower but still moderate pace, while growth in new orders eased only slightly.

Some analysts had expected a pullback in the PMIs, arguing that March’s more upbeat readings were likely due in part to one-off factors, such as changes in production and purchasing patterns ahead of a cut in value-added tax rates on April 1.

To counter the slowdown, Beijing has ramped up fiscal stimulus this year, unveiling tax and fee cuts amounting to 2 trillion yuan ($297 billion) to ease burdens on firms, while allowing local governments to issue 2.15 trillion yuan of special bonds to fund infrastructure projects.

Analysts have cautioned it will take time for those measures to fully kick in, with most not expecting the economy to convincingly stabilize until around mid-year.

Another official survey on Tuesday showed growth in China’s services industry also cooled in April, though it remained in solid expansionary territory.

Eyes on trade deal

While new factory orders remained sluggish, there were some encouraging signs on the export front.

The official index for export orders continued to contract, but hit its highest level in eight months, as optimism grows that Beijing and Washington will reach a trade deal in coming weeks which could ease pressure on Chinese exporters.

President Donald Trump said on Thursday that he would soon host Chinese leader Xi Jinping at the White House, setting the stage for a possible agreement on trade between the world’s two largest economies.

U.S. Treasury Secretary Steve Mnuchin told the New York Times that negotiations are in "the final laps" as he and Trade Representative Robert Lighthizer prepared to fly to Beijing for more talks this week.

Theo Vnexpress/Reuters