China’s war on smog taking edge off Asia

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In this photo a general view of The Forbidden City is seen during heavy smog in Beijing. AFP

HONG KONG (Reuters) – Growth in China’s manufacturing output slowed in October, threatening to chill activity across Asia, as tough steps to reduce air pollution forced factories to reduce production and a crackdown on financial risk-taking weighed on smaller firms.

While business surveys yesterday suggested Asia’s export-driven expansion still has legs, the readings are starting to reflect signs of fatigue after an impressive sprint so far this year, suggesting regional economic growth has peaked.

Still, barring any unexpected shocks, most analysts polled expect the global economy will remain on a roll for one more year, even if China sees a gradual loss of momentum.

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In the West, similar preliminary surveys last week looked solid enough not to derail plans by Federal Reserve to gradually reduce its balance sheet and by the European Central Bank to slow bond buying. The Bank of England may raise interest rates for the first time since 2007 on Thursday despite the Brexit shock.

Taken together, the recent data points to global economic growth of around 3.5 percent this year, analysts at Capital Economics said, adding the world economy should be able to sustain that rate in 2018.

In China, a private survey showed manufacturing output rising at the weakest pace in four months in October and companies continued to shed staff despite a slight pick-up in domestic and export orders.

The Caixin/Markit Manufacturing Purchasing Manager’s Index (PMI) was unchanged from September’s reading of 51.0, and in line with forecasts.

But production growth slowed markedly, nearing the 50-point threshold that separates expansion from contraction.

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Similar PMI surveys in Japan, South Korea, Indonesia, Taiwan, Vietnam and India also suggested growth was starting to fade, while activity in Malaysia contracted.

“We expect (China’s) growth momentum to weaken in the coming months as the drags from slower credit growth, reduced fiscal support post-Party Congress and the environmental crackdown all intensify,” said Julian Evans-Pritchard, China economist at Capital Economics.

The Caixin China report followed a similar official survey on Tuesday which pointed to an unexpected cooldown in the manufacturing sector in the face of a weakening property market and a crackdown on smog, which is forcing some steel mills and factories in the northeast to curtail or halt production.

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