China's manufacturing activity contracted in December 2018, signaling renewed deterioration in the sector-specific operating conditions, data from Caixin and IHS Markit showed.
The seasonally adjusted purchasing managers' index, or PMI, dropped to 49.7 in December from 50.2 in November 2018, marking manufacturing activity's contraction for the first time since May 2017. A reading above 50 indicates expansion.
Monthly production edged higher in December 2018, while total new orders fell below the neutral 50 mark for the first time since June 2016. Employment in the sector edged up, but remained in contractionary territory.
New export orders fell for the ninth month in a row, though at a softer monthly pace, reflecting subdued demand due to the trade dispute between China and the U.S., Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said.
The two largest economies of the world are currently in a 90-day trade truce, which is set to end March 1.
The trade war has not only hit the export sector, but has also affected export-related supply chain companies, hurting domestic demand, wrote Iris Pang, ING Research's economist for Greater China. "If domestic demand is not supported by fiscal stimulus quickly, then further weakening will pose a risk to job security."
"That could create a vicious downwards cycle."
Recent data from China's National Bureau of Statistics also showed the manufacturing PMI slipping below 50 points in December 2018.