China's manufacturing index slows in July in early sign of weakness

Workers at a garment factory in Huaibei, east China's Anhui province.
Workers at a garment factory in Huaibei, east China's Anhui province.PHOTO: AFP

BEIJING (AFP) - Chinese manufacturing activity slowed further in July, official data showed on Saturday, an early sign of weakness for the world's second-largest economy in the second half of this year.

The official Purchasing Managers' Index (PMI) came in at 50.0 last month, the National Bureau of Statistics (NBS) said in a statement.

The reading, which tracks activity in China's vast factory and workshop sector, decelerated slightly from 50.2 in June.

The index is seen as a key barometer of the Asian giant's economic health, a key driver of global growth. A figure above 50 signals expansion in the sector, while anything below indicates contraction.

"The decline of the official PMI suggests the manufacturing sector remained weak," economists from Australian bank ANZ said in a statement.

They predicted that China's government would further ease credit in the second half of 2015 in an attempt to shore up growth.

The official report showed a better result than an independent survey sponsored by Chinese media group Caixin, announced late last month. Its preliminary PMI reading for July tumbled to a 15-month low of 48.2.

Caixin is due to release the final figure, compiled by financial information services provider Markit, on Monday.

China's economy, a key driver of global growth, expanded 7.4 per cent last year, the weakest since 1990, and has slowed further this year, growing 7.0 per cent in each of the first two quarters.

Authorities, while accepting the need to steer China's growth lower to make it more sustainable, have still taken stimulatory measures to put a floor on the slowdown.

The central People's Bank of China in June announced its latest cut in benchmark interest rates, the fourth such move since November, in a bid to kickstart lending. It also reduced for the third time this year the amount of cash banks must keep in reserve and has taken other steps such as easing mortgage policies to boost the property market.

Adding uncertainty to China's growth outlook has been a bout of intense volatility in the country's benchmark Shanghai stock index that saw it plunge more than 30 percent after peaking on June 12, forcing authorities to implement support measures including limiting stock sales and funding purchases.