China factory activity shrinks again as firms watch for stimulus, US trade deal

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China's manufacturing PMI remains below growth threshold at 49.8

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Non-manufacturing PMI slows to 50.0 from 50.3 in August

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Separate private sector factory activity PMI at 51.2 from 50.1

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Overall economic impulse still points to soft underbelly

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Markets waiting for clarity on trade deal with U.S.

BEIJING, Sept 30 (Reuters) - China's manufacturing activity shrank for a sixth month in September, an official survey showed on Tuesday, suggesting producers are waiting for further stimulus to boost domestic demand, as well as clarity on a U.S. trade deal.

The official purchasing managers' index (PMI) rose to 49.8 in September versus 49.4 in August, below the 50-mark separating growth from contraction, but beating a median forecast of 49.6 in a Reuters poll.

The prolonged slump underlines the twin pressures on China's economy: domestic demand has failed to mount a durable recovery in the years since the pandemic while U.S. President Donald Trump's tariffs have squeezed Chinese factories as well as overseas firms that buy components.

All the same, a separate private-sector survey of factory managers showed the fastest expansion since March, buoyed by rising new orders and accelerated production growth, including an uptick in new export orders.

The two surveys cover different pools of producers, with the NBS placing more emphasis on large- and medium-sized firms focused on domestic sales, while RatingDog General PMI, compiled by S&P Global, which came in at 51.2, up from 50.5 in August, includes a larger share of export-orientated private companies.

"The rebound reflects a seasonal uptick as the summer disruptions are behind us and the government becomes more supportive," said Xu Tianchen, senior economist at the Economist Intelligence Unit, referring to the official PMI's headline figure.

China's economic momentum is marked by swings, he added: a strong first quarter from early stimulus, a slower midyear, followed by a fourth quarter rebound as the government ramps up support measures to meet growth targets.

UNCERTAINTY OVER U.S. TRADE DEAL

Policymakers rolled out a series of consumer loan subsidies in mid-August, a decision vindicated by separate factory output and retail sales data for the month, which saw their weakest growth in 12 months.

Pan Gongsheng, the governor of the People's Bank of China, said last week a range of monetary policy tools to support the economy remained available, but refrained from following the U.S. Federal Reserve with a rate cut, as some economists speculated the central bank might.

Despite signs the $19 trillion economy is losing momentum, authorities appear in no hurry to roll out major stimulus measures, given resilient exports and a stock market rally, market watchers say.

Adding to signs of a slowdown, the official non-manufacturing PMI, which includes services and construction, fell to 50.0 from 50.3 in August, according to the National Bureau of Statistics (NBS), its worst reading since November.

The NBS composite PMI of manufacturing and non-manufacturing came in at 50.6 in September, compared with 50.5 in August.

The new export orders sub-index contracted for the seventeenth straight month, while employment and factory gate prices also remained firmly in the doldrums.

The data point to producers slashing prices to find buyers overseas, despite the fact that China's exports to regional rival India hit an all-time high in August, according to customs data, and shipments to Africa and Southeast Asia are on track for annual records.

But no other country comes close to the consumption power of the U.S., where Chinese producers sell more than $400 billion worth of goods annually, accounting for around 14% of total exports.

Chinese leader Xi Jinping phoned Trump on September 19 for the first time in three months, and while the call appeared to ease tensions, it remains unclear whether it yielded the expected agreement on popular short-video app TikTok, which analysts see as key to a broader trade deal.

Disagreements on technical details appeared to be weighing on negotiations, as Chinese and U.S. trade officials met again last Thursday to revisit issues discussed in talks before this month's Madrid summit, where a framework TikTok deal was reached. (Reporting by Joe Cash; Editing by Sam Holmes and Shri Navaratnam)