Fears of continuous economic slowdown in China loomed after the pressure brought by the weak growth in Chinese factories and the recent slowest rate in China’s April service sector. The global economic and geopolitical tension also served as a headwind for the second largest economy in the world to seek for a stable economic recovery.
Low Industrial Data
At the start of the week, the latest Chinese factory activity surprised the market with its lowest growth rate since October. In the past seven months, Caixin Manufacturing PMI dropped to 50.3, near the neutral level of the manufacturing index.
Despite the slight growth in April’s manufacturing activity, the figures were not enough to sustain the previous momentum in the sector. The announcement came after the disappointing figures from the official Chinese PMI figures released on the weekend.
Part of the contributing factors of the slow rate growth were the weak total output and new purchasing orders since September and the falling orders of the iron and steel prices.
As expected the report heightened the current risks in the Chinese economy. The financial environment in China also remains unsteady with stricter monetary policy and the cumulative effort of the authorities to control credit risk.
Weak April Service Sector Rate
The Caixin/Markit services purchasing managers' index (PMI) reported the fourth monthly decline in a row of China’s service sector which put business confidence on the red light. China’s Caixin April Services PMI was down at 51.5 while its composite slid at 51.2.
With these disappointing figures, the business sentiment in China is greatly affected as the employment rate might suffer in the coming months. Recently, April data showed the downbeat employment and trading data.
Amid these alarming data, market experts might have anticipated the lack of support in the Chinese economy at the moment.
Last Week, Lou Feng, director of the economic analysis department of the Chinese Academy of Social Sciences, said that “We may have already seen the peak. Government investment can’t last long, and growth momentum will slow when the policy emphasis goes back to reining in risks and the effects of earlier fiscal support fade.”
The same sentiment was shared by Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group. Dr. Zhong concluded that the deceleration of China’s manufacturing and services sector was a clear indication of the slowdown in the expansion of the Chinese economy.
Dr Zhong also warned the market players regarding the economic situation in China. "A turning point in growth appeared to have emerged at the beginning of the second quarter. Investors should be cautious about downward risks in the economy,”
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