China factory gauge stays sluggish in June as slowdown lingers

Chinese workers making jeans at a clothing factory in Shishi, east China's Fujian province.
Chinese workers making jeans at a clothing factory in Shishi, east China's Fujian province.PHOTO: AFP

BEIJING (BLOOMBERG) - A Chinese factory gauge remained sluggish last month, suggesting a tepid response from manufacturers to loosened monetary policy settings and efforts to shore up local government finances.

The official Purchasing Managers' Index was 50.2 for June, missing the median estimate of 50.4 in a Bloomberg survey and unchanged from May. The non-manufacturing PMI, a measure of services and construction, fared better, climbing to 53.8 in June from 53.2. Numbers above 50 indicate expansion.

The People's Bank of China lowered benchmark interest rates on the weekend in the fourth such move since November after a share market plunge added to challenges confronting the economy. While readings for industrial output, retail sales and property prices steadied in May, government policy responses have yet to spur a pick up.

"This is a sign of stabilization, but we haven't seen any rapid rebound yet," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "A rebound needs more policy support," including further reductions to the amount of cash banks must set aside, Ding said.

The non-manufacturing gauge was led higher by a climb in new orders. Measures of new orders, new export orders, input prices and employment deteriorated in June from the prior month, the factory reading showed.

"The situation is not good; important sub-indexes - orders, prices, production - all seem sluggish," said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd.

"The economy has stabilized but there are still downside risks. Fiscal, industrial and monetary polices need to be more coordinated. Fiscal policies need to be more proactive so that monetary easing can be more effective."

The PBOC's easing cycle started in November, when it cut the lending rate from 6 per cent to 5.6 per cent. Three further quarter percentage point reductions have brought it to 4.85 percent, still high by global standards. Bloomberg's monthly gross domestic product growth tracker has been below the government's 2015 growth goal of about 7 per cent all year.