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Trade war and weak yuan affect Asian giant

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China's yuan displays for photo with US Dollars. AFP

Trade war and weak yuan affect Asian giant

Chinese factory activity slowed in October, official data showed on Wednesday, adding to a growing list of bad news for the Asian giant as it struggles to maintain economic momentum in the face of US tariffs and a weakening yuan.

The Purchasing Managers’ Index (PMI), a key gauge of factory conditions, came in at 50.2 for the month, down from 50.8 in September, the National Bureau of Statistics said.

The figure was also below the 50.6 reading tipped in a Bloomberg News survey of economists, though it was still slightly above the 50-point mark that separates expansion from contraction.

The figures are the latest sign that the world’s second-largest economy is losing momentum as it faces challenges at both home and abroad – from a trade war with the US to a massive debt buildup.

“All the numbers from China’s PMI release today confirm a broad-based decline in economic activity,” ANZ’s Raymond Yeung said in a research note.

“Economic conditions facing China’s private sector are much worse than what the headline figure suggests,” he warned, noting that a closer analysis of the figures shows that manufacturing by small and medium-sized businesses actually contracted in October.

Chinese economic growth slowed to 6.5 per cent in the third quarter, down from a high of 6.8 per cent this year.

The number was in line with Beijing’s annual target. But more downward pressure could threaten the country’s key political goals of eliminating poverty by 2020 and building a “moderately prosperous society”.

US tariffs on virtually all Chinese imports have sapped confidence in Beijing’s ability to maintain current growth levels.

Analysts say that the country’s overleveraged companies and local governments are likely to put a further drag on expansion.

China’s ailing stock markets have made the concerns even more acute, Yeung said, noting that “risks related to stock-pledged lending have escalated due to the fall in Chinese equities”.

Offering stock as collateral for loans is a common practice in China.

Further complicating the picture is the falling price of the yuan against the dollar, with the unit at its lowest level in a decade.

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