China sees slower growth in PMI

Expansion of China's factory and service activities slowed down in July but still pointed to steady economic growth.

Expansion of China’s factory and service activities slowed down in July but still pointed to steady economic growth.

The Purchasing Managers’ Index for the manufacturing sector dipped to 51.2 in July from 51.5 in June, data released by the National Bureau of Statistics yesterday showed.

The non-manufacturing PMI also inched down to 54 in July from 55 in June.

The general PMI, which covers both manufacturing and services industries, dropped to 53.6 from June’s 54.4.

Though PMIs for both sectors dropped from the previous month, they still pointed to steady expansion as a reading above 50 indicates expansion, while a reading below reflects contraction.

The manufacturing PMI remained above 51 for five straight months, while the non-manufacturing PMI has stayed at or above 54 percent for 11 months in a row.

“The drop in PMI was mainly due to the recent severe weather conditions and the growing instability due to the international trade frictions. Some industries’ entering the traditional slack season also affected the PMI,” said Zhao Qinghe, the statistics bureau’s senior statistician.

Hot weather and rainy days affected some mining and construction firms, while trade frictions weighed on export enterprises by dampening new orders.

The sub-indexes for production and new orders dropped by 0.6 and 0.9 percentage points, respectively, to 53 and 52.3, signaling a slowdown in both production and demand, Zhao said.

In terms of corporate scale, the indicator for large companies retreated 0.5 from the previous month to 52.5 in July but still stayed within the booming range, while PMIs for medium-sized companies and small companies were both below the tipping point.

Zhao highlighted the rise in consumer consumption level and the faster expansion of the consumer goods manufacturing industry, with the index for the consumer product manufacturing sector climbing 0.6 from a month earlier to 52.4 in July, 1.2 points higher than the indicator for the general manufacturing sector.

Meanwhile, as the export orders index stayed unchanged at 49.8 in July after dipping below the 50-point threshold in June, the impact of trade tensions appear to have had little impact from the previous month, according to the Australia and New Zealand Banking Group.

Services expanded but at a lower pace compared with a month earlier.

Among the 20 service sectors, the business activity indicators for 15 sectors were within the expanding range, and those for rail and air transport and telecommunication were above 60, according to the statistics bureau.

The data also showed that pressure of rising costs for some companies eased and supply conditions for financing and labor force improved last month.

“July’s PMI prints suggest a soft start for the third quarter, compared with the second quarter and the same period of last year. If the manufacturing PMI continues to ease in August and September, there is a risk that GDP growth in the third quarter will fall below 6.5 percent year on year,” said Betty Wang, senior China economist at ANZ Group.

But Wang also noted that the recent economic policy adjustments are partly meant to address the downside risks in the economy and may boost sentiment over the medium term.

“In addition to the previously reserve requirement ratio cut, the Chinese authorities have signaled that fiscal policy will be more proactive in the second half, which is likely to lead to an acceleration in infrastructure investment and project-based local government bond issuance,” Wang added.

China has issued a string of measures to support the real economy in the past few weeks. The central bank and other financial regulators published more pragmatic execution guidelines for the wealth management industry and encouraged banks to allocate more on credit bonds, while the State Council called for more accommodative fiscal policies.

The PMI for the manufacturing sector is expected to rebound in future as the government’s supportive policies gradually take effect and influence of seasonal factors fades, according to Lian Ping, chief economist with Bank of Communications.

China’s economy grew 6.8 percent year on year in the first half of this year, above the annual target of around 6.5 percent.

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