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China's July PMI slightly down to 49.9 due to massive floods

By Leng Cheng | August 1, 2016, Monday | Online Edition

CHINA'S official factory gauge fell below the dividing line between improvement and deterioration due to heavy flooding, while private manufacturers posted their first activity expansion in 17 months, data showed today.

Manufacturing purchasing manager’s index fell to 49.9 last month, below June’s 50, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

The softened momentum of manufacturing growth reflected impact caused by recent massive floods along Yangtze River Economic Belt, Australia and New Zealand Banking Group said a research note yesterday, as the industrial production will remain sluggish in the near term as the area's production have been disrupted.

Factory output fell to 52.1 in July from 52.5 in June, and total new orders hovered just inside expansionary territory at 50.4, slightly down from June's 50.5, the PMI showed.

The structure of growth seems to have continued to worsen, as the PMI for small enterprises dropped while the PMI for big enterprises continued to pick up, Nomura Securities said in its report. But the broker estimated a rebound of performance in September and the fourth quarter on post-flood reconstruction demand.

Meanwhile, the Caixin China General Manufacturing PMI, which reflects private and export-oriented manufacturing conditions, came in at 50.6. It posted better than expected performance and was up significantly by 2 points from its June reading.

This was the first expansion in activities since February 2015, with sub-indexes of output, new orders and inventory all surging past the 50-point mark that separates growth from decline.

"The Chinese economy has begun to show signs of stabilizing due to the gradual implementation of proactive fiscal policy," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note after the PMI report.

"But the pressure on economic growth remains," Zhong said.

China reported last week that industrial profits rose at the fastest pace in three months in June, though gains were concentrated in a few industries including electronics, steel and oil processing.

Second-quarter Chinese economic data was slightly stronger than expected, thanks to a housing boom and government infrastructure spending spree that are boosting demand for materials from cement to steel.

But analysts considered July's data "do not bode well for GDP growth" in the second half of this year, as the real estate sector which propelled growth in the first half may have peaked.

"We expect the authorities to maintain an accommodative monetary policy. However, as deleveraging remains a policy priority, we believe fiscal policy will take the lead in boosting growth in second half of 2016," ANZ said.

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