China's Manufacturing Sector Shrinks On Trade Tensions

China's manufacturing activity contracted for the first time in four months in June as trade tensions caused renewed declines in sales, export orders and production, survey data from IHS Markit showed Monday.

The Caixin manufacturing Purchasing Managers' Index fell to 49.4 in June from 50.2 in May. A score below 50 indicates contraction.

According to official survey, the factory PMI held steady at 49.4 in June. The non-manufacturing PMI came in at 54.2 versus 54.3 in May, the official data from the National Bureau of Statistics showed over the weekend.

The June PMIs support the assessment that the stabilization of economic growth in late first quarter and early second quarter would prove short-lived and that, given the so-far limited scale of policy stimulus and the headwinds from US tariffs and cooling global growth, a renewed slowdown is on the horizon, Julian Evans-Pritchard, an economist at Capital Economics, said.

The central bank is likely to respond to this with additional monetary easing, the economist added.

"It's crucial for policymakers to step up countercyclical policies," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said. "New types of infrastructure, high-tech manufacturing and consumption are likely to be the main policy focuses."

Total new business contracted for the second time this year so far, while the fall in exports followed from a renewed increase in May, survey showed.

Consequently, manufacturers reduced their production, ending a four-month sequence of expansion.

Further, manufacturers reduced their jobs in June. Nonetheless, the pace of decline was broadly similar to those seen in the remainder of the second quarter.

Despite reaching a seven-month high in June, the input cost inflation rate remained mild in the context of historical survey data. Similarly, there was a slight rise in factory gate charges, following no change in May.