Factory activity in China contracts amid trade dispute

China May factory activity shrinks more than expected as exports falter

China May factory activity shrinks more than expected as exports falter

Activity in China's key manufacturing sector unexpectedly slowed down more than expected in May, falling victim anew to the increasingly ruinous trade war with the United States.

Marking a three-month low, the figure fell below the 50.0 mark separating expansion from contraction.

The PMI for manufacturing sector came in at 49.4, down 0.7 percentage points from the previous month.

China's factory activity fell into contraction territory in May amid an ongoing trade dispute with the USA that has seen higher tariffs slapped on Chinese exports.

The new exports orders and imports sub-index shrank further from April.

Looking ahead, June's data will be critical to shed more light on the overall growth momentum for the second half of the year amid the downside risks to China's export sectors amid the trade war, which could be more severe than last year, as exporters have already front-loaded some shipments, according to Betty Wang, senior China economist at the ANZ Group. "And, the damage on China's telecommunication companies has slowed down their production in China as they foresee slower sales globally".

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Next week, investors will home in on the Caixin China General Manufacturing PMI, the Caixin Composite PMI, and the Caixin Services PMI. The sharp fall in export orders suggests the latest US tariff hike for Chinese imports has weakened foreign demand for Chinese goods.

Meanwhile, the raw material inventory sub-indices edged up to 47.4 from 47.2, and the sub-index for suppliers' delivery time jumped to 50.9 in May from 49.9 in April. Two successive months (April and May) of weakening PMI underscores the battering China's economy continues to take from the trade war, say analysts.

China's manufacturing purchasing manager index (PMI) dropped to 49.4 versus 49.9 forecasts and below the 50.1 prior while non-manufacturing PMI fell below the 53.5 market consensus to match 54.3 prior.

Employees work at a production line inside an automobile factory in Hangzhou, Zhejiang Province, China, Jan. 18, 2016.

As for the manufacturing industry, large enterprises' PMI registered 50.3 in May, down 0.5 percentage points.

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