China’s Manufacturing PMI Dips To 49.4

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Last month China’s manufacturing PMI fell from expansion (51.4%) in April to contraction (49.4%) in May.

Among the many questions regarding this dip, it comes down to a matter of which of the mitigating factors caused the decline: was it the trade or technology war? And will China use the yuan to enhance manufacturing-related exports?

The answer to the question of which ongoing spat with the U.S (trade or technology) has done the most damage, experts agree the answer is both. The trade war has a ripple effect through all trade-related domestic activity. Fewer exports mean fewer export-related materials like packing and shipping. On the technology side, telecom companies are throttling back production on predictions of slower global sales in the near future.

ING financial analysts wrote “The technology war is brewing even faster in May 2019, and could continue for the rest of the year. We, therefore, expect the technology war to put pressure on industrial profits for the whole of 2019”.

As for using the yuan to bolster export-related manufacturing, experts agree that the central government is not likely to take such a step. Exporters are not going to trade a few more orders for depreciation of the yuan, which will have the more harmful downrange effect that will outweigh the temporary boost in orders. It’s also critical to maintaining a healthy yuan right now as a technology war is likely to destabilize asset markets because of the interlinked global supply chain. In reality, it is more likely that the Chinese government will help by developing other, domestic markets for high-end goods, and rely heavily on the Belt and Road initiative, a global development strategy involving infrastructure and investments in countries throughout Asia, Europe, Africa, the Middle East, and America.