Manufacturing activity at 6-year low
Print Edition
ACTIVITY in China’s manufacturing sector likely fell to its lowest level in more than six years in August, piling more pressure on the country’s growth prospects, according to figures published yesterday.
The Caixin Flash China General Manufacturing Purchasing Managers’ Index, the earliest indicator of activity in the sector, dropped 0.7 points from July to 47.1.
The reading is the lowest for 77 months and far below the 50-point mark that separates expansion and contraction.
Activity in China’s factories has now been in decline for six months, according to the latest poll by research firm Markit and sponsored by Caixin magazine.
“The fall shows the economy is still in the process of bottoming out,” said He Fan, chief economist at Caixin Insight Group.
“But overall, the situation remains under control and the structure of China’s economy is improving,” He said.
The weakness in the August figures was broad-based. Sub-indexes showed that manufacturing output fell 0.5 points to 46.6, while both new orders and new export orders dropped by 0.9 points to 46.3 and 46 points, respectively, their lowest marks in more than six years.
Zhu Haibin, chief economist for China at JP Morgan, said the data will intensify people’s concerns about China’s growth prospects.
The poll is “biased toward export-oriented small- and medium-sized manufacturers that typically benefit less than large companies from the government’s growth stabilization measures,” he said.
“The weak reading is related to the economic rebalancing, but if the adjustment is too sharp, it could become destabilizing,” he said. “Looking into the future, further fiscal support and monetary easing will lead to a pick-up in infrastructure investment, which will support domestic demand by partially offsetting the weakness in manufacturing and real estate investment.”
China’s economy grew 7 percent in the second quarter of the year, beating the average market forecast of 6.8 percent and in line with the government’s full-year target of about 7 percent.
However, the recovery might have been short-lived, as key data for trade, industrial production, retail sales and fixed-asset investment in July all pointed to weaknesses in the economy.
“The data indicated sluggish activity and little improvement in the growth momentum,” said Liu Ligang, an economist at Australia & New Zealand Banking Group.
“If the conditions don’t change, China’s economic growth could fall below 6.5 percent in the third quarter,” he said.
The official purchasing managers’ index for July, a gauge of operating conditions in mainly state-owned manufacturing companies, fell 0.2 points from June to 50.0, indicating industrial activity was on the brink of contraction.
In a bid to bolster the economy, China has cut interest rates four times and lenders’ reserve requirement ratio three times since November, and has accelerated its investment in infrastructure projects.
On August 11, the central bank adjusted the way in which it calculates the reference rate for the yuan against the US dollar, which led to a huge fall in the value of the Chinese currency.
The final version of the Caixin poll and the official PMI are set to be released on September 1.
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