Manufacturing activity in China contracted for a fourth straight month in July while growth in services and other sectors slipped, adding to calls for Beijing to unveil concrete measures to boost the flagging recovery of the world’s second-biggest economy.
China’s official manufacturing sector purchasing managers’ index for July came in at 49.3, slightly higher than analysts’ forecasts of 49.2 and above June’s reading of 49 but still in contraction territory.
The non-manufacturing PMI, which includes sectors such as construction and agriculture, fell to 51.5 from 53.2 the previous month. It was short of the 53 forecast by Goldman Sachs.
A reading below 50 indicates a month-on-month contraction, while one above 50 signals an expansion.
The July “data provides little encouragement that the economy is turning the corner”, Robert Carnell, head of Asia-Pacific research at ING, the Dutch bank, wrote in a note.
An anticipated manufacturing and export-led rebound from pandemic restrictions has failed to materialise for China’s economy this year as global economic conditions have deteriorated.
Growth in the country’s huge services sector, an important source of employment, has weakened while slowing consumer spending and investment, flagging exports and a property sector liquidity crisis have hampered growth. Gross domestic product rose 0.8 per cent in the second quarter compared with the previous three months, well below forecasts.
The Chinese Communist party’s senior decision-making body, the politburo, last week announced measures to try to boost the growth, which it acknowledged was making “tortuous progress”.
But analysts said Beijing would probably not unleash broader fiscal stimulus because of high debt levels, especially among local governments.
The PMI figures show “there is yet to be a significant turnaround in the softening recovery activity”, said Erin Xin, greater China economist at HSBC. “This puts more onus on policymakers to move swiftly to provide much-needed policy support.”
China’s state planner on Monday announced a consumption package targeting vehicle purchases and development in rural areas. The central bank has also eased monetary policy.
China’s benchmark CSI 300 rose 0.6 per cent on Monday, while the Hang Seng China Enterprises index added 1.3 per cent, with technology and property stocks climbing sharply on expectations that policymakers would have to step up efforts to stimulate the economy.
Xin added that contractions in the July PMI sub-indices for employment could indicate that economic conditions would “continue to weigh on jobs and consumption, possibly delaying a full recovery”. Youth unemployment soared to a record 21.3 per cent in June.
Hong Kong on Monday also reported second-quarter growth of just 1.5 per cent year on year, far below a 2.9 per cent expansion in the first three months.
The slowdown in July in non-manufacturing activity, previously rare bright spot, pushed the gauge closer to contraction, with most sub-indices other than business expectations already near or below the 50-point threshold.
Analysts at Citi argued however that the decline in manufacturing activity was showing signs of easing, indicating that “industrial momentum” might be “showing signs of bottoming”.
Yifan Hu, regional chief investment officer and head of macroeconomics for Asia-Pacific at UBS Global Wealth Management, said the politburo directives and other stimulus measures would kick in during the second half, predicting more interest rate reductions and bank reserve requirement cuts to inject liquidity into the system.
“Fiscal policy is to be more proactive with stronger infrastructure support and targeted tax and fee cuts,” he added.
Separate data from research group China Beige Book, which publishes alternative economic indicators, showed manufacturing activity picked up in July, but retail sales were markedly down compared with the previous month.
Additional reporting by Hudson Lockett and Chan Ho-him in Hong Kong
Source: Economy - ft.com
