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Activity in China’s key manufacturing sector shrunk to a three-year low this month as new export orders took the sharpest dive since the global financial crisis in 2009, underlining issues in an economy suffering from weak demand at home and overseas.

Data published by the National Bureau of Statistics (NBS) on Thursday showed the official Purchasing Managers’ Index (PMI) slipped to 49.2 in February from 49.5 last month, indicating a contraction in activity for the third consecutive month.

Analysts expect the manufacturing gauge would remain unchanged from January’s figure.

The latest data is likely to support views that the country’s momentum is still faltering, after growth in 2018 slowed to a near 30-year low. Factory activity in the world’s second largest economy has been mostly declining since last May.

Production in the manufacturing sector fell in February for first since January 2009, during the global financial crisis. A breakdown of the data showed the output sub-index dropped to 49.5 from 50.9 recorded the month before.

Manufacturers continued their aggressive job cuts, a move closely monitored by China as it considers additional support measures.

New export orders – an indicator of future activity – faltered for the ninth straight month, and at a more rapid pace, in the latest sign of weakening demand worldwide. The sub-index plunged by 45.2 to hit its lowest since February 2009, compared with 46.9 registered in January.

Still, total new orders returned to growth territory, with the sub-index advancing to 50.6 from 49.6 the prior month, signaling some progress in domestic demand after declining for two straight months.

China spectators usually recommend interpreting the country’s economic figures carefully due to the timing of the week-long Lunar New Year holidays.

Several companies had minimized operations or were closed for long periods during the holidays, which started on February 4.

However, employees, owners, and labor activists have stated that firms have closed earlier than typically expected as the impact of the trade war kicks in, with a few likely to shut their business permanently.

Trade Setback

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The PMI data also showed smaller companies were still absorbing the pressure in February, while big firms – many of them state-owned ventures – remained afloat, even with targeted policy measures to help struggling private business refinance and raise capacity.

Some economists see China’s expansion could even hit below 6 percent in the first half from 6.4 percent in the fourth quarter, before stabilizing later in the year as a series of support measures in 2018 and 2019 begin to kick in.

The cooling property sector, the end of the durable goods replacement cycle, and the payback effect from the previous front-loading of exports have been and will remain headwinds, according to Chief China economist Ting Lu.

Analysts also expect exports to remain strained even if the current US-China trade discussions result in a deal, as global demand continues to weaken.

Even with rising government stimulus to boost activity, fears are increasing that China might face a sharper slowdown if current trade negotiations with the US fail to mitigate some of the tension.

Greater China Economist Iris Pang stated that unless the trade war truly turns into an extended truce, the weakening trend may not end quickly.

US President Donald Trump said on Monday that he could secure an agreement with Chinese President Xi Jinping to put end the trade war, if the two countries can settle their differences, but the lead US negotiator stated on Wednesday that it was too early to predict the outcome.

US matters with China are too serious to be resolved with promises from Beijing to buy more US goods and any deal must have the means to guarantee that the commitments are fulfilled, according to US Trade Representative Robert Lighthizer.

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