Trade War Effect: China’s Manufacturing and Factory Activity Still in Contraction

According to data released earlier today, China’s services sector growth slowed down in July, falling to 53.7 from 54.2 in June. While the figure remains above the 50 threshold indicating growth, in the face of weakening manufacturing as a result of the US-China trade war, this does not bode too well for the economy.

Meanwhile, the trade war’s effect can be seen on China’s factory activity, which has continued to shrink for the third consecutive month. Manufacturing PMI came in at 49.7 in July, which although higher than the 49.4 in June, still denotes contraction in the sector. Export orders also continue to remain in contraction at 46.9, although they were higher than in June when this figure was 46.3.

Domestic demand also remains sluggish and incapable of offsetting the impact of the trade war. Amid the multiple rounds of tariff hikes which have depressed demand for Chinese manufactured goods in the US markets, this has caused some manufacturers to cut their sales targets for 2019.

US and China’s trade teams are holding in-person meetings in Shanghai to resume their negotiations officially, but expectations that a trade deal would be in the offing soon remain low for now.