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Economist at UOB Group Ho Woei Chen assessed the latest PMI releases in the Chinese economy.

Key Quotes

“China’s September manufacturing PMIs released this morning came in stronger than expected despite a more cautious global growth outlook and concerns that tensions between US and China are spreading beyond trade to technology and investments which could potentially cover portfolio investments”.

The improvements in manufacturing PMIs injected some optimism into the outlook for China and suggested that its manufacturing sector could be more resilient than expected. However, against the backdrop of US-China trade tensions and a global growth slowdown, we continue to see risks for China’s economy tilted to the downside”.

“The moderation in the July-August macroeconomic data including industrial production (IP), fixed asset investment (FAI) and retail sales were all pointing to further pressure on 3Q19 GDP growth”.

“As such, policy makers in China will continue to use a mix of monetary and fiscal stimulus tools to support growth. On 6th September, the PBoC announced its third cut to the reserve requirement ratio (RRR) this year, by 50 bps for all banks, with an additional, targeted 100 bps cut for qualified smaller financial institutions”¦ The countercyclical measures are expected to cushion the slowdown though China will likely maintain a measured approach. PBoC Governor Yi Gang had said that China is not in a rush to cut interest rates massively or use quantitative easing like some other central banks around the world, and will maintain a prudent policy stance”.