Asia’s factory activity stagnates as China’s recovery fades

Private surveys showed Asia’s manufacturing activity stalled in October as China’s recovery did little to boost regional factories; This is a discouraging sign for policymakers bracing for a potential escalation in U.S.-China trade tensions.

The readings come as the International Monetary Fund (IMF) warns of increasing risks to Asia’s economic outlook from trade fragmentation, China’s real estate woes and the potential for further market turbulence.

Purchasing managers index (PMI) surveys on Friday showed factory activity contracted in Japan and South Korea due to weak domestic demand and slowing growth in the US, European and Chinese markets.

But in a small glimmer of hope, China’s manufacturing activity returned to growth in October, helped by a series of stimulus measures that Beijing introduced to support the fragile economy.

The Caixin/S&P Global manufacturing PMI rose to 50.3 in October from 49.3 in the previous month, according to a private survey, beating analysts’ forecasts of 49.7 in a Reuters poll.

The reading recalled an official survey on Thursday that showed China’s manufacturing activity rising for the first time since April, a sign that the economy is stabilizing.

But Krishna Srinivasan, Director of the IMF’s Asia and Pacific Department, warned that deflation risks were increasing in China and that more steps were needed to correct problems in the real estate sector and increase consumption.

“China has a huge influence on what’s happening in Asia,” he told Reuters on Friday. “When China slows down, the rest of Asia slows down too,” he said, adding that the country must “move from an investment- and export-based model to a consumption-based model.”

Japan’s Jibun Bank’s final manufacturing PMI fell to 49.2 in October from 49.7 in September, experiencing the fastest contraction in the last three months due to weak domestic and international demand.

For the fourth consecutive month, the index remained below the 50.0 threshold that separates growth from contraction.

A private survey showed South Korea’s PMI remained unchanged at 48.3 in October, unchanged from the previous month, and output fell for the second month in a row, marking the biggest decline in the last 16 months.

Surveys showed factory activity contracted in Indonesia and Malaysia in October, but increased in Taiwan and Vietnam.