By Joe Cash
BEIJING- China’s manufacturing activity slipped to a five-month low in July as factories grappled with falling new orders and low prices, an official survey showed on Wednesday, pointing to a grinding second half for the world’s production powerhouse.
The National Bureau of Statistics (NBS) purchasing managers’ index (PMI) contracted for a third month, easing to 49.4 from 49.5 in June, below the 50-mark separating growth from contraction, but just ahead of a median forecast of 49.3 in a Reuters poll.
Sentiment remains gloomy among manufacturers as domestic demand is increasingly under siege and external pressures from trade tensions loom large for China’s $18.6 trillion economy, which grew more slowly than expected in the second quarter.
Both the new orders and new export orders sub-indices contracted for a third month in July, while employment and factory gate prices remained firmly in negative territory.
“The only silver lining is that the recent loss of momentum appears to have made officials more serious about turning up the gears of near-term policy support,” said Gary Ng, assistant economist at Capital Economics, adding that it “should underpin a recovery in activity in the coming months.”
Chinese leaders on Tuesday signaled they would release further stimulus aimed at boosting residents’ incomes to prompt low- and middle-income groups to spend and expand domestic demand, but stopped short of announcing specific steps.
Consumers have cut back spending on big-ticket items and shied away from premium-priced goods. Car sales, the biggest component of China’s retail sales, fell for the third month in June. Starbucks which has thousands of stores across its second-largest market, reported a 14 percent plunge in quarterly China sales as coffee drinkers gravitated to cheaper offerings.
And while half of the 300 billion yuan ($41.40 billion) in ultra-long treasury bonds China’s state planner announced last week will be allocated to support a program of consumer trade-ins, that amount is seen as too little to meaningfully boost economic recovery, as it is equivalent to just 0.12 percent of economic output and 0.3 percent of 2023’s retail sales.
Depressed domestic consumption is closely related to falling property valuations that have left families feeling poorer as 70 percent of household wealth is in real estate.
New home prices fell at their fastest pace in nine years in June and the PMI’s construction sub-index grew more slowly in July, pointing to diminishing demand in a once mighty property sector.
The official non-manufacturing purchasing managers’ index (PMI), which includes services and construction, slowed to 50.2 in July from 50.5 a month prior.
Solid Chinese exports have provided some support to factory managers in recent months and propped up progress towards the government’s growth target of around 5 percent , but as a growing number of trade partners consider import tariffs, the jury is out on whether that boost can be sustained. – Reuters
