No growth in China's factory activity last month

BEIJING • Growth at China's big manufacturing companies unexpectedly stalled last month as demand at home and abroad weakened, an official survey showed yesterday, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump. The official Purchasing Managers' Index (PMI) stood at 50.0 last month, compared to June's 50.2.

The 50-point mark separates growth from contraction on a monthly basis.

Analysts polled by Reuters had predicted another tepid reading of 50.2, pointing to expansion, albeit a sluggish one.

But export and domestic orders shrank for the large firms covered by the survey, and they continued to cut jobs in response.

It did not mention any impact from a savage 30 per cent drop in stock markets since mid-June, though analysts said wild price swings could hit consumer and business confidence and investment decisions, adding pressure to the already cooling economy.

"It warrants more concrete policy measures to stabilise the real economy," ANZ economists Li-Gang Liu and Louis Lam said in a research note.

"Perhaps the funds used to prop up the share market could be used to support the real economy."

The government has rolled out measures since last year to try to put a floor beneath sputtering economic growth, including accelerating infrastructure spending and repeated reductions in interest rates and banks' reserve ratio.

But growth is still expected to moderate this year to around 7 per cent, the slowest in a quarter of a century. The statistics bureau said the weaker reading was partly due to the weather, as high temperatures and heavy rain led some firms to reduce production and carry out maintenance.

"The recent fall in prices of oil and other commodity products also affected related industries," the bureau added.

A similar activity survey yesterday suggested that strength in the service sector continued to offset some of the persistent weakness at factories, but there were worrying signs on that front too.

The official non-manufacturing PMI edged up to 53.9 last month, compared with the previous month's reading of 53.8, pointing to solid expansion.

But service companies also reported softer orders, with the new orders sub-index falling to 50.1 last month from 51.3 in June and firms cutting jobs at a slightly faster pace. The stock market plunge has stoked fears among global investors about further damage to the Chinese economy.

Beijing's unprecedented but unconvincing efforts to hold up share prices have also led to doubts about its ability to ensure the country's financial stability.


A version of this article appeared in the print edition of The Sunday Times on August 02, 2015, with the headline 'No growth in China's factory activity last month'. Print Edition | Subscribe