Trade truce no lifeline as China's factory activity slumps to lowest since 2022
BEIJING, June 3 — Chinese factory activity hit a more than two-year low in May, a closely watched survey showed Tuesday, as a detente in Beijing's trade war with Washington was offset by ongoing domestic problems in the world's number two economy.
China and the United States agreed last month to temporarily halt most tit-for-tat tariffs on each other's goods, providing some much-needed relief to global markets.
But the standoff has still piled further pressure on China's economy, which already faced a long-running real-estate crisis, sluggish consumption and high levels of local government debt.
The Caixin Purchasing Managers' Index, independently calculated by S&P Global and Chinese business outlet Caixin, fell to 48.3 in May, well below the 50-point threshold separating expansion from contraction.
The figure was the lowest since September 2022 and well below the 50.4 seen in April.
It was also sharply off the 50.7 forecast in a Bloomberg survey of economists.
'The surprisingly sharp fall... means that the survey data now point to a loss of economic momentum last month,' said Zichun Huang, China economist at Capital Economics.
'Domestic headwinds (are) more than offsetting the boost from the US-China trade truce,' she said.
Wang Zhe, senior economist at Caixin Insight Group, said the slowdown was linked to 'sluggish external demand, which fell for a second straight month'.
The country should target effective measures to boost domestic demand by improving household incomes, Wang added.
Official data from the National Bureau of Statistics on Saturday showed a less severe contraction in the factory sector last month.
While the NBS figure focuses on large state-owned industrial groups, the Caixin index primarily surveys small and medium-sized enterprises.
But in a positive sign, a business sentiment survey by S&P Global and Caixin showed a slight improvement in May after a record drop in April, thanks to expectations of stronger foreign trade through the rest of the year. — AFP
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Malay Mail
16 minutes ago
- Malay Mail
Bargain hunters lift Bursa at open, shrugging off Wall Street jitters
KUALA LUMPUR, June 5 — Bursa Malaysia opened higher today on mild bargain hunting amid the mixed overnight performance on Wall Street, analysts said. At 9.05am, the FTSE Bursa Malaysia KLCI (FBM KLCI) was 1.50 points firmer at 1,509.47, compared with Wednesday's close of 1,507.97. The benchmark index opened 2.73 points higher at 1,510.70. The broader market saw a slight lead from positive gainers, with 106 leading decliners at 100, while 222 counters were unchanged, 1,928 untraded, and 20 suspended. Turnover stood at 82.87 million units, valued at RM52.36 million. Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said the mixed Wall Street was due to the United States' (US) private sector hiring data, which hit its lowest level in two years, on concerns over prevailing uncertainty, weighing on the US economy. In Hong Kong, the Hang Seng Index (HSI) maintained its uptrend to a near two-month high, as traders remained confident that a negotiation between China and the US would take place anytime soon. Back home, Thong said the FBM KLCI on Wednesday finally reversed its recent downtrend to close in positive territory, attributed to last-minute bargain hunting. Overall, he noted that trading activities remained muted, as indicated by the low daily volume of 2.4 billion shares. 'We noticed there has been a spate of downgrades on the FBM KLCI target this year, given the prevailing trade uncertainty. 'Nonetheless, we envisage bargain-hunting activities to prevail, hence, expect the index to trend within the 1,505-1,515 range today,' Thong told Bernama. Among the heavyweights, Press Metal Aluminium added 10 sen to RM5.00, MR DIY rose 3.0 sen to RM1.58, YTL Power International increased 5.0 sen to RM3.34, Nestle bagged 64 sen to RM79.00, and Sime Darby ticked up 1.0 sen to RM1.71. Among active stocks, ACE Market debutant Signatute Alliance Group climbed 6.0 sen to 68 sen, NexG added half-a-sen to 38.5 sen, Borneo Oil slid half-a-sen to half-a-sen, OCR was flat at 3.5 sen, and Country Heights gained 1.0 sen to 26.5 sen. On the index board, the FBM Emas Index strengthened 8.48 points to 11,291.56, the FBMT 100 Index garnered 7.75 points to 11,060.69, but the FBM ACE Index decreased 0.89 of-a-point to 4,478.76. The FBM Emas Shariah Index edged up 8.18 points to 11,249.83, but the FBM 70 Index gave up 1.46 points to 16,167.53. Sector-wise, the Financial Services Index trimmed 3.57 points to 17,754.28, but the Industrial Products and Services Index was up 0.17 of-a-point to 150.27, the Plantation Index grew 5.52 points to 7,209.19, and the Energy Index recovered 0.81 points to 703.27. — Bernama
The Star
37 minutes ago
- The Star
City-state's appeal as a safe haven rises
SINGAPORE: Singapore's safe-haven appeal is rising as investors seek respite from the volatility unleashed by US President Donald Trump's tariff flip-flops and potential tax cuts. Singapore equities have delivered a total return of 13% since the start of this year – more than double the MSCI All Country World Index's 6% gain. The gains come as investors move funds into safer and more stable stocks here, noted Morgan Stanley analysts on May 22. One of the causes of market volatility is the so-called 'Taco' trade, a term coined by Financial Times columnist Robert Armstrong referring to 'Trump always chickens out' when it comes to imposing tariffs. Each time Trump backs down, stocks stage a rally. The first notable Taco trade came on April 9, when Trump paused the supersized tariffs he had proposed on April 2 after global stock markets plunged and longer-term US Treasury yields spiked. Soon after, Trump hinted at possibly removing Jerome Powell as chairman of the US Federal Reserve, only to retreat once markets reacted sharply. Other examples include an agreement to roll back US tariffs of 145% to 30% on most goods imported from China, and a similar pullback by China on US goods. The United States and China announced on May 12, after talks in Geneva, that there would be a further 90 days to negotiate and agree on tariffs. On cue, markets recovered. The latest Taco trade was on May 26 and 27, when markets rallied after Trump announced a delay to 50% tariffs on goods from Europe. US stocks remained strong on May 29, after a ruling by the US Court of International Trade stated that Trump had overstepped his authority by imposing across-the-board duties on imports from other nations. But Wall Street is increasingly brushing off tariff threats from Trump: A recent analysis quoted by Bloomberg said the S&P 500 Index's sensitivity to tariff-related headlines has dropped sharply since April. Data showed that just over a third of the S&P 500's daily movements are now driven by tariff news compared with early April, when tariffs accounted for as much as 80% of daily market moves, Bloomberg noted. Morgan Stanley analysts believe the safe haven provided by Singapore stocks will continue to perform well amid these market swings. Ratings agency Moody's downgraded the US government's credit rating by one notch on May 16, from AAA to Aa1, due to concerns about the nation's growing budget deficit and debt. It was the third of three major rating agencies to do so amid stock market swings. By comparison, Singapore holds an AAA rating, the highest possible, from all three major agencies. Stocks and Treasuries are not the only US assets facing greater volatility; the US dollar has been battered, too. Some investors have sought refuge from the greenback's weakness in the Singapore dollar, which has risen by 5.5% against the US dollar since the start of this year. Bank of Singapore economist Mansoor Mohi-uddin noted on May 2 that the Singapore dollar is a proven long-term store of value, backed by the Monetary Authority of Singapore's (MAS) policy of allowing the currency's trading band to appreciate over time, as well as 'huge foreign reserves'. The Singapore dollar was trading at 1.287 to a US dollar at 9pm local time last Thursday, almost unchanged from the day before, despite some volatility earlier in the day, and not far from its 10-year high of 1.2807 last September. Michael Wan, a foreign exchange analyst at MUFG Bank, noted that the Trump administration has filed a notice of appeal with the US Court of International Trade against its ruling. Wan said he expects that Trump's tariffs will likely remain in effect throughout the appeals process, as the administration is expected to pursue the case all the way to the Supreme Court, implying a prolonged period of legal uncertainty. He added that the initial strengthening of the US dollar against most Asian currencies when the ruling was announced on May 29 will not last, given that 'tariffs on Asia are likely to stay amid the legal battle, coupled with the legal uncertainty also potentially crimping US growth and investment plans further'. Demand for Singapore assets from investors seeking a safe place to park their funds may continue over the longer term. Bank of Singapore's Mohi-uddin noted on May 22 that US Treasuries, the S&P 500 and the US dollar have fallen together on just 10% of all trading days since 1971. 'This year so far, there will already be 10 such days. We expect President Trump's erratic policymaking is set to increase the number of days, keeping us cautious on long-term Treasuries and the US dollar.' Still, MAS managing director Chia Der Jiun noted recently that there are cyclical and structural factors determining the pricing and confidence in the US currency and US dollar assets. 'On the cyclical side, markets are pricing in slower growth, the prospect of higher inflation and questions over the fiscal trajectory in the United States, as well as rotation into other regions and hedging of overweight exposures,' he said at a forum on May 20. 'On the structural side, the US Treasury market is fundamental and systemic to the global financial system, and there is no alternative at this point.' — The Straits Times/ANN
Malaysian Reserve
40 minutes ago
- Malaysian Reserve
Chinese EV trucks will build our future cities
IF YOU think the world is starting to get used to surging sales of Chinese-made electric cars, the next wave of exports is going to be bigger, and more powerful. That's because the construction machinery giants that grew fat off the country's property bubble are looking for new markets to offset the downturn at home. Combined with looming electrification, the effects could be quite as dramatic as the other Made-in-China export booms which have so troubled trading partners. Consider Sany Heavy Industry Co. In 2020, 83% of its business was selling excavators, cranes, concrete mixers and the like to domestic developers. In the space of just four years, China's property crash has caused its turnover in that market to shrink by two-thirds. Overseas markets now account for more than 60% of revenue. It's hoping to raise US$1.5 billion (RM6.55 billion) via a Hong Kong IPO to help it double international sales to 100 billion yuan (RM60 billion), the South China Morning Post reported last month. Sany isn't alone. Its local rivals XCMG Construction Machinery Co, Zoomlion Heavy Industry Science & Technology Co and Guangxi LiuGong Machinery Co are all facing the same collapse of activity on the home front, where housing starts in the first four months of 2025 fell to their lowest level since 2003. That's left dismal returns on all the assets they built to service a market that's since disappeared — below 5%, less than half what Caterpillar Inc manages and well below the 7.7% at Komatsu Ltd. The best way out of this problem is to find export markets to get the production lines for all those diggers, dozers, lifters and trucks humming again. Zoomlion's international sales have followed Sany's in becoming the largest element of its revenue, and XCMG and LiuGong aren't far behind. There's plenty of work to go around. In the Persian Gulf, governments are using the windfall from the oil boom of the early 2020s to build a swath of major infrastructure projects, from the Middle East's first Walt Disney Co theme park in Abu Dhabi, United Arab Emirates, to a new international airport in Riyadh, Saudi Arabia, and a US$22 billion, five-year infrastructure plan for Qatar. Construction markets are also booming across South and SouthEast Asia and in parts of Africa. China's export market share in major categories of work vehicles has soared in recent years. As with passenger cars, electrification offers a potent route for further disruption. Batteries are often considered an ill fit for construction machinery, which has extreme power needs that diesel is particularly well-placed to deliver. But that's changing as lithium-ion cell-makers build cheaper and longer-lasting power packs that can often keep running as long as an eight-hour work day, according to IDTechX, a consultancy. Electric construction equipment sales will grow at 21% annually up to 2044, when they'll hit US$126 billion, IDTechX predicted last year. Chinese manufacturers have an advantage here. Local battery-makers Contemporary Amperex Technology Co and BYD Co are market leaders in LFP (lithium ferrophosphate), the cathode chemistry that's likely to be best-suited to site vehicles, thanks to its stability and low costs. Already, local construction machinery manufacturers produce about two-thirds of the electric bucket loader models on the market. Circumspect governments should be looking at ways to outcompete this shift. Instead they're raising the drawbridge. The European Union (EU) in April set tariffs as high as 67% on Chinese construction machinery, while the UK has more recently imposed duties of more than 30% on excavators made by Sany, Liugong and XCMG. The Indian joint venture between Tata Motors Ltd and Hitachi Construction Machinery Co last year called on New Delhi to raise levies against imported Chinese products, saying they'd already grabbed 22% of the market. Things are even worse in the US, where the US President Donald Trump administration is busy unpicking the heavy-duty vehicle emission standards introduced by former President Joe Biden. That removes much of the incentive for US-exposed manufacturers such as Caterpillar, Komatsu, Volvo AB and Deere & Co to innovate and compete with the coming onslaught. Work vehicles have tended to fly below the radar in discussions of urban emissions, but their vast size and power requirements give them a disproportionate share of engine pollution. China's 10 million construction machines emit more particulates than its 417 million road vehicles, according to the International Council on Clean Transport. With low-emission zones spreading across cities worldwide and older diesel vehicles increasingly restricted on the roads of major cities such as London, Paris and Madrid, construction machinery is increasingly going to find itself in the crosshairs as one of the biggest contributors to urban pollution. When that happens, Chinese manufacturers will have a solution ready to be driven from their parking lots. Will their incumbent overseas competitors be ready, too? — BLOOMBERG This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. This article first appeared in The Malaysian Reserve weekly print edition
