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Chinese activity in factories in June was more than expected

China's factory activity shrank more than expected in June, according to official research Sunday, pointing to the need for greater economic incentives, while US tariffs boosted pressure on the second-largest global economy.

Workers direct the steel pipe lifting crane for export to the port in Lianyungang province, Jiangsu Province, China, June 30, 2019. REUTERS / Stringer

Poor production readings will likely cast a shadow on the obvious progress that the US and Chinese leaders have made in Japan over the weekend to re-launch their troublesome tariff talks in the middle of a shrinking trade war.

Indicators will also fuel concerns over China's growth and global recession risk, despite slightly better than expected export and industrial earnings data in May.

The Official Purchase Manager Index (PMI) in June was 49.4, which is unchanged from the previous month and below 50 points, which disassociates from a month-to-month contraction. Analysts surveyed by Reuters predicted a reading of 49.5.

Many economists still expect the economy to face strong consequences in the coming months as domestic demand falls and external risks grow.

In June, Chinese plant growth slowed down, with a sub-index dropping to 51.3 in May, with 51.7 in May, while the decline in total new orders accelerated to 49.6 from 49.8.

Export orders increased their decline, while the sub-index fell to 46.3 in May compared to May 46.5, suggesting a further downturn in global demand.

While Chinese exporters feel dissatisfied, data on Sunday showed that import orders also deteriorated, reflecting a softening of demand at home despite a large number of measures that fuel growth this year.

Presidents Donald Trump and Xi Jinping held talks on ice breaking in Japan on Saturday. However, the Chinese state media warned on Sunday that Beijing and Washington will likely face a long road before the two countries reach agreement.

Analysts at Nomura expect that any gains on the interim trade agreement between China and the United States will prove passable with renewed escalation probably further.

Trump has already introduced customs duties of $ 250 billion in Chinese goods and threatens to extend them to another $ 300 billion, effectively covering all Chinese export services to the US. China has repatriated customs duties on imports from the United States.

In order to cope with economic challenges, policy makers have announced a number of incentives and are expected to launch more. Premier Li Keqiang promised last week to cut real interest rates on financing small and micro companies.

Manufacturers continued to reduce the number of jobs in June, with the index of employment dropped to 46.9, compared to 47.0 in May, when it reached the lowest level since March 2009.

Official business research has shown that activity in the Chinese service sector remained strong in June, despite growing pressure from the wider economy due to sharper US trade measures, while official reading amounted to 54.2 in June from 54.3 in May.

Beijing relies on a strong service sector to initiate weakening while trying to shift the economy away from dependence on heavy industry and export production.

Reporting by Norihiko Shirouzu and Yilei Sun; Writing Yawen Chen; Editing Sam Holmes

Our standards:Principles of Trust in Thomson Reuters.

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