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Early Data Signal September Was Tough Month for China's Economy

Bloomberg logo Bloomberg 9/29/2018 Bloomberg News

(Bloomberg) -- Leading indicators for China’s economy show growth continued slowing in September amid the escalating trade war with the U.S.

The data suggest the dispute was weighing on economic activity even before the latest round of tariffs, which took effect this week. That’s the takeaway from a Bloomberg Economics gauge aggregating the earliest-available indicators on business conditions and market sentiment.

a screenshot of a cell phone: Slowdown Continues © Bloomberg Slowdown Continues

Policy makers have taken steps to insulate the economy from deterioration in the external environment.

"The early indicators point to further weakness in the Chinese economy even before the latest round of the U.S. tariffs took effect," Bloomberg Chief Asia Economist Chang Shu said. "The government measures to support growth have not yet had visible effects so far."

Hedged Impact

During a Sept. 25 press briefing in Beijing where officials presented an 81-page white paper blasting U.S. President Donald Trump’s trade policies, National Development and Reform Commission Vice Minister Lian Weiliang told reporters "China is fully capable of hedging the impact by expanding domestic demand" through a variety of measures including tax cuts and infrastructure spending.

The first official data for September, the purchasing managers indexes for the manufacturing and services sectors, will be released Sunday at 9 a.m. Both will decline slightly, according to forecasters surveyed by Bloomberg. The official manufacturing PMI reading unexpectedly picked up slightly in August, with analysts saying that the mere announcement of government stimulus had helped stabilize sentiment.

External demand conditions though continued to deteriorate this month as the political situation worsened. A weighted average of the flash PMI readings of China’s major trading partners including the U.S., the European Union and Japan declined in September for the fifth straight month, bringing the measure to its lowest level in over a year. That said, PMI readings in many major trading partners remain firmly in expansion territory, showing that demand is far from collapsing.

Mixed Sentiment

Factory inflation also moderated -- for the third month in a row, to the lowest level since April, according to Bloomberg calculations.

Market sentiment was mixed. The benchmark Shanghai Stock Exchange Composite Index had a monthly gain after bottoming out in mid-September at its lowest level in almost four years. Copper prices also rebounded, but stayed well below where they were earlier in the year, before the U.S. and China began imposing tariffs on each other’s exports.

The stabilization in financial markets this month "likely reflects optimism about additional fiscal spending," Citigroup analysts led by Dirk Willer wrote in report published Friday.

"However, we recognize that the magnitude of stimulus is moderate compared to previous cycles, and that the goal to control macro leverage remains intact," they said. "We thus believe that the risk of growth overshoot on the upside is limited."

China’s central bank didn’t follow the Federal Reserve’s interest-rate increase this week, with analysts saying growing uncertainty would keep them from increasing borrowing costs for some time. Most People’s Bank of China watchers expect the central bank to continue increasing the amount of liquidity in the financial system in the fourth quarter, according to a Bloomberg survey.

PBOC Skips Open-Market Operations After Fed Raises Rates

Data published by the Bank for International Settlements this week showed that deleveraging, a major initiative of Chinese policy makers in 2017, had already started to reverse in the first quarter of this year, even before a full-blown trade war began.

Chinese companies are not feeling optimistic. An index developed by London-based research firm World Economics, based on a survey of sales managers in China, tumbled this month to its lowest level in two years.

"September data reveals: slowing sales, higher prices, falling jobs market and growing unease that the situation will not improve over the coming months," Ed Jones, chief executive of World Economics, wrote in a report accompanying the data.

"The service sector is continuing to keep the economy buoyant with consumer-based sales growth outperforming manufacturing sales," Jones wrote. "Manufacturing continues to be in a lackluster situation with panel managers in the sector reporting that the current weakness of the yuan and the developing trade war with the United States is hurting their performance."

(Updates with quote from analysts from tenth paragraph.)

To contact Bloomberg News staff for this story: Matthew Boesler in Beijing at

To contact the editors responsible for this story: Jeffrey Black at, James Mayger

©2018 Bloomberg L.P.

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