Chinese Manufacturing Continues To Contract

From Reuters (via One America News Network):

       China’s factory activity is expected to have contracted for a fifth straight month in September, a Reuters poll showed, adding to the country’s economic woes as Beijing remains locked in an escalating trade war with the United States.

      The official Purchasing Managers’ Index (PMI) for September is expected to remain flat at 49.5 from August, according to the median forecasts of 22 economists, below the 50-point mark that separates expansion from contraction on a monthly basis.

      The continued downturn in manufacturing activity points to further weakness in the world’s second-biggest economy, fuelling expectations the authorities will have to roll out more stimulus measures to avert a sharper slowdown.

      Helen Raleigh, via Fox News, discussed this past week why she thinks China has already lost the trade war. After noting how China has historically exaggerated its economic growth and size of its economy, she notes the downward slump in its economy.

President Donald Trump's trade tariffs struck the Chinese economy when it was already declining and the effects have been devastating. The tariffs have not only reduced imports from China , but also caused foreign companies to shift their supply chain out of China. Beijing had hoped that  its stimulus measures, including tax cuts and easy credits to local governments and big businesses, would reduce or even eliminate  anticipated negative impacts on the Chinese economy. However, the latest data are a wakeup call that those stimulus measures were not sufficient enough to absorb the blow from the trade war.

But that is not all. The price of pork--a staple of the Chinese diet--has risen and squeezed consumers in China. Raleigh notes that "[p]ork prices have spiked by more than 46 percent so far, and some experts predict the price increase may be over 80 percent by next year." This is because of an African Swine Fever outbreak that may cause the loss of over 50% of China's pig population by the end of this year. Thus, China was forced to back down on some of the threatened tariffs on American agricultural goods, including pork and soybeans.

     In addition, China's "friend" Iran has not helped matters by its attack on Saudi Arabia. While the United States has been able to drill its way to energy independence, China is the world's largest importer of oil and has been hit hard by the spike in oil prices. As Raleigh concludes, "[a] combination of higher oil and food prices will not only increase pressure on an already slowing Chinese economy, but will also make some of China's go-to stimulus measures, such as the devaluation of its currency, more risky."