China factory gauge suggests economic momentum faded in July

Workers on a production line at the Huajian shoe factory in Dongguan, China on Sept 14, 2016.
Workers on a production line at the Huajian shoe factory in Dongguan, China on Sept 14, 2016. PHOTO: AFP

BEIJING (BLOOMBERG, REUTERS) - China's official factory gauge dialed back a notch in July as a push by authorities to curb financial risks spreads.

The manufacturing purchasing managers index fell to 51.4 in July, compared to the 51.5 median forecast in a Bloomberg survey of economists, and the 51.7 reading in June.

The non-manufacturing PMI stood at 54.5 compared to 54.9 a month earlier. Numbers higher than 50 indicate improving conditions; below 50 signals deterioration.

The world's second-largest economy performed more strongly than analysts had anticipated in the first half, buoyed by a turnaround for exports and resilient domestic demand. Challenges lie ahead for the second half as policy makers vow to tackle excessive leverage and have slowed the pace of credit expansion.

"We expect the slowdown in domestic demand in the second half to especially affect the profitability of heavy industry and mining," Alessandro Theiss, senior economist at Oxford Economics in the UK, wrote in a recent note.

China posted stronger-than-expected economic growth of 6.9 per cent in the first half, fuelled by a year-long construction boom, resurgent exports and robust retail sales.

But economists have expected the pace to slow slightly in the second half due to higher financing costs, a regulatory clamp-down on riskier lending and some signs of moderating in the red-hot housing market.