Weak Chinese factory activity puts pressure on Beijing to support economy


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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, weak 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 flagging economy, which it acknowledged was making “tortuous progress”. Government departments have released initiatives to try to boost growth, and the central bank has eased monetary policy.

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, echoing the pledge made in the recent politburo meeting last week.”

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.

The National Development and Reform Commission, China’s state planner, will hold a press conference on Monday afternoon where it promised to unveil measures to increase spending.

China’s benchmark CSI 300 rose 0.5 per cent on Monday after the PMI data release, while the Hang Seng China Enterprises index added 2 per cent, with technology and property stocks climbing sharply on expectations that policymakers would have to step up efforts to stimulate the economy.

The slowdown in July in non-manufacturing activity, a 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.

“We can only put this down to continued hope that the government will pull something out of the bag that will reinvigorate the economy,” said Carnell. “However . . . we aren’t at all convinced that there is a fiscal bazooka waiting to fire up the economy.”

Analysts at Citi, though, argued that the decline in manufacturing activity was showing signs of easing, indicating that “industrial momentum” might be “showing signs of bottoming”.

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.

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Lisa Holden
Lisa Holden
Lisa Holden is a news writer for LinkDaddy News. She writes health, sport, tech, and more. Some of her favorite topics include the latest trends in fitness and wellness, the best ways to use technology to improve your life, and the latest developments in medical research.

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