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China’s manufacturing activity shrank for a third straight month in July, an official survey showed on Wednesday, increasing pressure on policymakers to accelerate stimulus measures to boost the world’s second-largest economy.
The country’s official manufacturing purchasing managers’ index came in at 49.4, in line with analysts’ forecasts in a Bloomberg poll and down from June’s 49.5. A reading above 50 marks an expansion from the previous month.
China’s Politburo this week called for implement the stimulus program fasterand the central bank have cut interest rates as the government tries to hit its 5% economic growth target this year.
China’s economy are suffering from weak domestic consumption due to a prolonged downturn in the property market and tighter government controls on businesses that have undermined confidence.
At its recent five-yearly strategic policy meeting, Beijing emphasized high-end manufacturing and industrial upgrading over real estate and household consumption.
The non-manufacturing PMI came in at 50.2 in July, still in growth territory and in line with analysts’ forecasts of 50.2 but down from June’s 50.5.
Among the sub-indices, output came in at 50.1, down 0.5 from the previous month but still showing slight growth, the National Bureau of Statistics said Wednesday.
However, the new orders index was 49.3, down 0.2 from the previous month and indicating that demand in the manufacturing market has weakened.
Employment in both manufacturing and non-manufacturing sectors was below 50, indicating weakness in the labor market.
Despite the housing market’s struggles, construction activity remained positive. The services sub-index held steady at 50, down from 50.2 the previous month, with some sectors such as leisure and sports booming while others such as retail and capital markets contracted.
“Lower commodity prices and steel output suggest that manufacturing growth momentum weakened in July,” Goldman Sachs wrote in a report released ahead of the data.
The bank attributed the lower services PMI to “persistent weakness in the real estate and financial services sectors”.
Morgan Stanley analysts said ahead of the numbers that deleveraging among local government financing vehicles and in the housing sector is creating a “gravitational drag on the economy.” Emerging industries — electric vehicles and green energy — are also suffering from overcapacity.
Policymakers are trying to counter fiscal tightening by expanding the use of proceeds from long-term government bond issuance to support consumption and capital spending, they said. But “policy transfer may take time,” they wrote.
The Chinese government has issued 1 trillion yuan ($138 billion) super long term special government bonds to finance infrastructure and other projects and stimulate the economy.
It has also announced plans to revive the property market, including 300 billion yuan program to buy unsold homes was announced in May.
But the real estate measures are seen as too small to have a big impact and economists say more structural measures are needed to restore investor confidence and stimulate consumption.
