Asia's manufacturing sector weakens further, show surveys

BEIJING (AFP) - Asia's manufacturing sector weakened in July, private surveys showed on Thursday, with China's showing a deepening contraction amid nagging worries over the growth outlook for the world's second-largest economy.

Closely-watched monthly assessments on Asian manufacturing released by British banking giant HSBC showed that contractions also worsened in key exporters South Korea and Taiwan, while ongoing expansions in India and Indonesia weakened.

A separate assessment by an industry group in Australia showed that manufacturing there contracted further in July.

In China, HSBC's final reading of its purchasing managers' index (PMI) for July came in at 47.7, down from 48.2 in June and the lowest since August last year.

The result signals "a deterioration of business conditions for the third consecutive month", HSBC said in a release.

The PMI surveys track manufacturing activity in factories and workshops and are closely watched gauges of economic health. A reading below 50 indicates contraction, while anything above signals expansion.

Worries over China's economy have intensified this year after an expected rebound failed to materialise. China's economy, a key engine of global growth, grew 7.8 per cent in 2012, its worst performance in 13 years.

The economy has since weakened further, with growth in the April-June period dipping to 7.5 per cent, from 7.7 per cent in the first quarter and 7.9 per cent in October-December.

"With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment," Mr Qu Hongbin, HSBC's chief economist for China based in Hong Kong, said in the bank's statement announcing the figure.

China last week unveiled steps to boost growth, including reducing taxes on small companies as well as encouraging railway construction and foreign trade incentives, leading Mr Qu to voice some optimism.

"These targeted measures should boost confidence and reduce downside risks to growth", he said.

The news was not all bad for China, with the National Bureau of Statistics announcing that the country's official PMI index rose to 50.3 last month from 50.1 in June, marking the 10th consecutive month it has been in expansionary territory.

The two surveys often differ, economists said, citing divergences in sampling and timing, though they were at odds over what the latest readings mean for the outlook for Asia's biggest economy.

"The positive signs in the official report should not be dismissed, but it is still too early to conclude a decisive growth rebound," French bank Societe Generale said in a report.

Economists at ANZ bank, meanwhile, questioned the integrity of the Chinese government figure.

"It doesn't change our overall assessment of the deteriorating economy," they said.

China's new leaders say they want to wean the country off its traditional reliance on exports and investment and refocus the economy to one that expands in a stable and sustainable fashion in which consumer spending drives growth.

Elsewhere, South Korea's PMI slumped to 47.2 in July from 49.4 in June, HSBC said, while Taiwan's came in at 48.6 from 49.5.

In India, meanwhile, the HSBC index weakened to 50.1 in July from 50.3. In Indonesia, it dropped to 50.7 from 51.0.

Separately, the Australian Industry Group's performance of manufacturing index for July fell to 42.0 in from 49.7.

"Manufacturers are telling us that, while the fall in the Australian dollar and the May interest rate cut have been extremely welcome, they have not yet been enough to turn around a very challenging business environment, locally and internationally," Mr Innes Willox, the group's chief executive, said in a statement.