Expansion in China’s Factory Sector Hits Lowest Level in Months

Expansion in China’s Factory Sector Hits Lowest Level in Months

China’s gauge of manufacturing activity slips in latest sign of slackness of world’s second-largest economy

Expansion in China’s factory sector in July hit the lowest level in nearly a year and a half, with a gauge of activity slipping in the latest sign of slackness of the world’s second-largest economy.

China’s official manufacturing purchasing-managers’ index, a gauge of manufacturing activity, dropped to 50.4 in July from 50.9 in June, according to data released by the National Bureau of Statistics on Saturday.

The July reading also fell below a median forecast of 50.8 from a Wall Street Journal poll of economists, but still remained above the 50 mark that separates expansion from contraction.

Beneath the headline number, the subindex measuring production declined to 51.0 in July, from 51.9 the previous month as the recent record rainfall in central China and Yangtze River Delta triggered flooding and tangled supply chains. Power shortages in some cities held back output.

The subindex of new export orders fell deeper into contractionary territory to 47.7 in July from 48.1 in June, signaling weakening external demand for Chinese goods as the overseas pandemic situation worsened.

To shore up a slowing economy, Beijing moved to free up more liquidity in the banking sector for lending by lowering the reserve requirement ratio for banks in mid-July.

In the Politburo meeting Friday, the top decision-making body of the ruling Communist Party pledged more effective fiscal support and suggested monetary support would remain stable in the second half of the year.

Although the policies’ tone turned less hawkish than the previous months as the economy showed weakness, economists don’t expect a big stimulus in the coming months as there is no high growth pressure ahead.

China achieved a 12.7% growth rate in the first half of the year, compared with the pandemic-scarred first six months of 2020, and gave Beijing a lot of cushion to hit their full-year growth target of at least 6% and maintain stability ahead of the leadership reshuffling next year.

A possible slowdown in the broader economy was also reflected in the slowdown of expansion in nonmanufacturing PMI, which includes gauges of services and construction activity. The index fell to 53.3 in July from 53.5 in June, but still stayed in expansionary territory driven by factors such as summer consumption, the statistics bureau said Saturday.

The subindex measuring constructive business fell sharply to 57.5 from 60.1 in the previous month, hit by the extreme weather and floods in recent weeks, said the statistics bureau in a separate statement released Saturday. The new orders received by service providers remained in contractionary territory at 49.7 in July from 49.5 in June. The subindex measuring service activity edged up to 52.5 from the previous month’s 52.3.

The nonmanufacturing sector was negatively affected by the floods and a resurgence of recent Covid-19 cases, which has infected at least 200 people in Nanjing, a city in eastern China.

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