US TRADE WAR: China SMASHED by Donald Trump battle as yuan slides

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The Purchasing Managers' Index (PMI) of the Chinese National Bureau of Statistics (NBS) and an industry group, the China Federation of Logistics and Purchasing, fell to 50.2 from September's 50.8 on a 100-point scale on which numbers above 50 show activity expanding.

Another sister survey released by the NBS on Wednesday showed growth in China's service sector moderated in September, with the official non-manufacturing Purchasing Managers' Index (PMI) dipping to 53.9 from 54.2 the previous month.

The move will increase tensions with the Trump administration, which has come close to accusing China of currency manipulation after the yuan has fallen in value and made exports more competitive.

When answering questions from domestic media about economic and financial hot issues, Chinese Vice Premier Liu He stressed that the Chinese government will create an equal environment, intensify the rule of law, strengthen property rights and intellectual property protection, stick to the basic economic system and deepen reform and opening up. The continued slump in export orders may be bearing that scenario out.

Already, China reported slower-than-expected growth of 6.5 percent in the third quarter of the year - its weakest pace since the first quarter of 2009.

In terms of the single index, the sub-index on new export orders shrank for a fifth straight month to sit at its lowest level since February at 46.7 - compared to 48.0 in September.

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October is the first full month after the latest United States tariffs went into effect. Washington and Beijing slapped additional tariffs on each other's goods on September 24.

October has seen fluctuating supply and demand across the manufacturing sector due to external uncertainties and the National Day holiday in early October, NBS senior statistician Zhao Qinghe said in a statement (link in Chinese), analyzing the reasons for the PMI drop.

Even before the escalation in trade tensions with the USA this year, Beijing was already trying to manage a slowdown in its economy after three decades of breakneck growth.

China's manufacturing sector has been squeezed by a reduction in sources of credit amid Beijing's multi-year crackdown on corporate debt and risky lending practices, with smaller firms especially under strain.

However, a sub-index of construction activity improved in an indication that the government's infrastructure push may be taking hold, analysts say.

"Headwinds on export growth are still looming", said analysts with Nomura International (Hong Kong) in a note.

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