A worker inside an electronics factory in Qingdao, Shandong province, China. Picture: REUTERS
A worker inside an electronics factory in Qingdao, Shandong province, China. Picture: REUTERS

Beijing — Growth in China’s manufacturing sector slowed in June after a better than expected performance in May, official data showed, as escalating trade tensions with the US fuel concerns about a slowdown in the world’s second biggest economy.

China’s economy has already felt the pinch from a multiyear crackdown on riskier lending that has driven up corporate borrowing costs, prompting the central bank to pump out more cash by cutting reserve requirements for lenders.

The official purchasing managers index released on Saturday fell to 51.5 in June, from 51.9 in May, but it remained well above the 50-point mark that separates growth from contraction for a 23rd straight month.

Analysts surveyed by Reuters had forecast the reading would dip marginally to 51.6.

The findings are in line with recent data including credit growth, investment and retail sales pointing to slowing growth in China’s economy, as policy makers navigate debt risks and a heated trade row with the US. Significantly, the June new export orders index contracted for the first time since February, to 49.8 from 51.2 in May.

A production subindex fell to 53.6 in June from 54.1 in May, while a new orders subindex declined to 53.2 from 53.8.

External demand

"Domestic demand is weakening and external demand faces pressure from escalating trade friction between China and the US," said Wen Bin, senior economist at Minsheng Bank in Beijing. He said he expected the central bank to continue to lower banks’ reserve requirement ratios (RRR) in the coming months to help ward off a sharper economic slowdown.

On June 24 the central bank said it would cut the RRR by 50 basis points for some banks to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.

Credit growth has slowed in 2018 as the government cracks down on many types of lending, and the tighter liquidity environment appears to be affecting growth.