Authors: Joe Cash and Alan Zhang
BEIJING (Reuters) – China’s manufacturing activity fell for a second straight month in June, an official survey showed on Sunday, while services activity fell to a five-month low, pushing for further stimulus as the economy struggles to regain its strength. The voice is still rising.
The National Bureau of Statistics (NBS) Purchasing Managers’ Index (PMI) came in at 49.5 in June, unchanged from May and below the 50 line that separates growth from contraction, in line with the median forecast of 49.5 in a Reuters poll.
Xu Tianchen, senior economist at the Economist Intelligence Unit, said: “Real industrial activity should be stronger than the data suggests because our observation is that the official purchasing managers’ index does not fully reflect the current export momentum, which has been weak this year. main economic driver.
Still, external and domestic demand are still relatively insufficient to absorb China’s manufacturing capacity, which will hinder the recovery of producer prices, Xu added.
A survey by the National Bureau of Statistics showed that although the production sub-index was above 50 in June, other indices such as new orders, raw material inventories, employment, supplier delivery times and new export orders were all in contraction range.
China’s exports beat expectations in May, but analysts said the jury was still out on whether export sales were sustainable given rising trade tensions between Beijing and Western economies. Meanwhile, the protracted real estate crisis continues to weigh on domestic demand.
The non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest level since December, as consumers remained cautious and a boost from the Labor Day holiday was short-lived.
The services PMI fell to 50.2, a five-month low, and the construction PMI fell to 52.3, the lowest level since July last year.
Analysts expect that China will introduce more policy support measures in the short term, and the government has promised to strengthen fiscal stimulus, which will help accelerate the growth of domestic consumption.
Zhou Hao, chief economist of Guotai Junan International, said: “Weak PMI data naturally requires the Chinese government to adopt more supportive policies. However, as the yuan is under pressure, the space for temporary relaxation of monetary policy is limited.”
“Having said that, fiscal policy is likely to take over, suggesting the central government will need to issue more debt in the foreseeable future to boost overall domestic demand.”
High local government debt and deflationary pressures have cast a long shadow over the recovery prospects, although officials have rolled out a series of measures since October that have tempered the expectations of investors and factory owners.
China’s central bank announced a subsidy housing refinancing program last month to speed up sales of its unsold housing stock to better meet supply and demand.
Officials are under pressure to jump-start new growth engines to reduce the economy’s reliance on real estate.
Prime Minister Li Qiang said at the World Economic Forum meeting on Tuesday that the growth of emerging industries supports the healthy development of the economy.
Li Keqiang said: “Since the beginning of this year, China’s economy has continued to maintain a good trend… It is expected that it will continue to improve steadily in the second quarter.”
Economists and investors are awaiting the Third Plenary Session of the Central Committee of the Communist Party of China from July 15 to 18, when hundreds of senior Chinese Communist Party officials will gather in Beijing for the five-year gathering.
