China's factory activity shrinks for 4th month as trade pressure mounts

Factory activity in China shrank in August for the fourth month in a row as the United States ramped up trade pressure and domestic demand remained sluggish, pointing to a further slowdown in the world's second-largest economy.

Persistent weakness in China's vast manufacturing sector could fuel expectations that Beijing needs to roll out stimulus more quickly, and more aggressively, to weather the biggest downturn in decades.

The Purchasing Managers' Index (PMI) fell to 49.5 in August, China's National Bureau of Statistics said on Saturday, versus 49.7 in July, below the 50-point mark that separates growth from contraction on a monthly basis.

A Reuters poll showed analysts expected the August PMI to stay unchanged from the previous month.

The official factory gauge showed growing trade frictions with the United States and cooling global demand continued to wreak havoc on China's exporters.

Export orders fell for the 15th straight month in August, although at a slower pace, with the sub-index picking up to 47.2 from July's 46.9.

Total new orders - from home and abroad - also continued to fall, indicating domestic demand remains soft, despite a flurry of growth-boosting measures over the past year.

Manufacturers in consumption-oriented industries such as the auto sector have been especially vulnerable. Carmakers such as Geely and Great Wall have slashed expectations for sales and profits.

The data showed activity at medium and small-sized firms contracted, even as large manufacturers, many backed by the government, managed to expand in August.

Factories continued to shed jobs in August amid the uncertain business outlook. The employment sub-index dropped to 46.9, compared with 47.1 in July.

Escalations

August saw dramatic escalations in the bitter year-long Sino-U.S. trade row, with President Donald Trump announcing early in the month that he would impose new tariffs on Chinese goods from Sept. 1, and China letting its yuan currency sharply weaken days later.

After Beijing hit back with retaliatory tariffs, Trump said existing levies would also be raised in coming months. The combined moves now effectively cover all of China's exports to the United States.

Both sides indicated this week that they are discussing another round of face-to-face negotiations next month, raising hopes there is still room for a de-escalation.

Trump said on Monday that China wants to reach a deal "very badly", citing what he described as increasing economic pressure on Beijing and job losses.

But most analysts are highly doubtful of an end to the dispute any time soon, and some have recently cut growth forecasts for China in coming quarters.

Growth in China's services sector activity picked up for the first time in five months in August, with the official numbers from a separate business survey rising to 53.8 from 53.7 in August.

Beijing has been relying on a strong services sector to cushion some of the economic impact from trade uncertainties and sluggish manufacturing activities.

However, despite the higher overall figure, activity in the property industry contracted, the statistics bureau said in a statement.

The services sector has been propped up by Chinese consumers' rising wages and robust spending power in recent years. However, the sector softened late last year amid a broader slowdown.