Under strain from tariff war, China shows fresh cracks

In October, its manufacturing activity fell and the yuan was fixed at a new 10-year low to the dollar.

China is showing signs of strain under the ongoing trade war with the US. October showed its manufacturing growth stalled and Yuan slide. The second largest economy is also exhibiting signs of a widening slowdown. 
 
Fresh signs of the trade war pressure and cracks in its economy became visible as manufacturing activity fell and the yuan was fixed at a new 10-year low to the dollar. There was barely noticeable expansion in country’s manufacturing sector with both domestic and external demand waning. 
 
The global economy has been rattled by the escalating trade tiff and there is all round anxiety in the markets over China's slowing growth and its likely impact on the global economy. The latest official Purchasing Managers' Index (PMI) further clinched China’s declining fortunes and indicated more stress was in store for investors in coming months. 
 
Notably, the PMI fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September. A figure below 50 represents a contraction. 
 
Further, new export orders, an indicator of future activity, also contracted for the fifth straight month and at the fastest pace in a year.
 
The slowiown could prompt more policy support from Beijing that has already pumped in tens of billions of dollars into the financial system and taken several other initiatives to prop up the economy. 
 
Media reports quoted  Raymond Yeung, chief economist for China at ANZ saying in a client note, “All the numbers from China's PMI release today confirm a broad­based decline in economic activity.” 
 
He added that the situation for the private sector is "much worse" than what headline data suggested. "Besides an expected reserve requirement ratio (RRR) cut next January, we expect future supportive policy actions to be measured. The government's priority is to avoid a financial blow­up.”, he said.
 
The impact of a falling yuan will be felt on the country’s exports as they will become cheaper and this could possibly offset the impact of US tariffs. However, it will also accelerate capital flight and put downward pressure on asset prices in China such as property. 
 
The China Daily said on Wednesday that allowing the exchange rate to float more freely could be a “wise choice for China, against the backdrop of trade conflicts and economic downside risks, showing that China may be ready to see its currency fall further. 
 
 Source: Media reports
 

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