BEI­JING

The Pak Banker - - BUSINESS -

Growth at China's big man­u­fac­tur­ing com­pa­nies un­ex­pect­edly stalled in July as de­mand at home and abroad weak­ened, an of­fi­cial sur­vey showed on Sun­day, re­in­forc­ing views that the econ­omy needs more stim­u­lus as it faces fresh risks from a stock mar­ket slump.

The of­fi­cial Pur­chas­ing Man­agers' In­dex (PMI) stood at 50.0 in July, com­pared to the pre­vi­ous month's 50.2. The 50-point mark sep­a­rates growth from con­trac­tion on a monthly ba­sis. An­a­lysts polled by Reuters had pre­dicted another tepid read­ing of 50.2, point­ing to ex­pan­sion, al­beit a slug­gish one.

How­ever, both ex­port and do­mes­tic or­ders shrank for the large firms cov­ered by the sur­vey, and in re­sponse they con­tin­ued to cut jobs. It did not men­tion any im­pact from a sav­age 30 per cent drop in stock mar­kets since mid-June, though an­a­lysts said wild price swings could hit con­sumer and busi­ness con­fi­dence and in­vest­ment de­ci­sions, adding pres­sure on the al­ready cool­ing econ­omy."It war­rants more con­crete pol­icy mea­sures to sta­bilise the real econ­omy. Per­haps the funds used to prop up the share mar­ket could be used to sup­port the real econ­omy," ANZ econ­o­mists Li-Gang Liu and Louis Lam said in a re­search note.

ANZ main­tained its forecast that the cen­tral bank will cut in­ter­est rates by another 25 ba­sis points (bps) this quar­ter and re­duce banks' re­serve re­quire­ments by 50 bps by year-end. The gov­ern­ment has rolled out a flurry of steps since last year to try to put a floor be­neath sput­ter­ing eco­nomic growth, in­clud­ing ac­cel­er­at­ing in­fra­struc­ture spend­ing and re­peated re­duc­tions in in­ter­est rates and banks' re­serve ra­tio. But growth is still ex­pected to mod­er­ate this year to around 7 per cent, the slow­est in a quar­ter of a cen­tury.

The sta­tis­tics bureau said the weaker read­ing was partly due to the weather, as hot tem­per­a­tures and heavy rain led some firms to re­duce pro­duc­tion and carry out main­te­nance. "The re­cent fall in prices of oil and other com­mod­ity prod­ucts also af­fected re­lated in­dus­tries," it added.

A pre­lim­i­nary, pri­vate Caixin/Markit sur­vey last month showed ac­tiv­ity at smaller fac­to­ries con­tracted by the most in 15 months. China's slow­down has al­ready be­come a sharp re­al­ity check for many for­eign com­pa­nies do­ing busi­ness there and for its ex­port-re­liant Asian neigh­bours. Volk­swa­gen low­ered its global sales forecast on Wed­nes­day and said it was braced for stag­nant vol­umes in China, af­ter years of dou­ble-digit growth in its big­gest mar­ket.

South Korea on Satur­day re­ported ex­ports to China, its big­gest cus­tomer, fell 6.4 per cent in July from a year ear­lier, the sharpest de­cline in five months. The stock mar­ket plunge has stoked fears among global in­vestors about fur­ther dam­age to the Chi­nese econ­omy, while Bei­jing's un­prece­dented but so far un­con­vinc­ing ef­forts to hold up share prices have led to doubts about its abil­ity to en­sure fi­nan­cial sta­bil­ity. Mar­ket watch­ers fear that some com­pa­nies may be fac­ing heavy losses af­ter spec­u­lat­ing in stocks, although the over­all amount of lever­age is hard to quan­tify.

Still, econ­o­mists at No­mura said this week that China was "far from be­ing in a cri­sis sce­nario", and be­lieve the share sell-off "should only have a lim­ited neg­a­tive im­pact on the real econ­omy." A sim­i­lar ac­tiv­ity sur­vey on Satur­day sug­gested strength in the ser­vices sec­tor con­tin­ued to off­set some of the per­sis­tent weak­ness at fac­to­ries, but there were wor­ry­ing signs on that front, too.

The of­fi­cial non- man­u­fac­tur­ing Pur­chas­ing Man­agers' In­dex ( PMI) edged up to 53.9 in July, com­pared with the pre­vi­ous month's read­ing of 53.8 and point­ing to solid ex­pan­sion. But ser­vices com­pa­nies also re­ported softer or­ders, with the new or­ders subindex fall­ing to 50.1 in July from 51.3 in June, and firms cut jobs at a slightly faster pace. The ser­vices sec­tor has ac­counted for the big­ger part of China's eco­nomic out­put for at least two years, with its share ris­ing to 48.2 per cent last year, com­pared with the 42.6 per cent con­tri­bu­tion from man­u­fac­tur­ing and con­struc­tion.

China's Polit­buro has promised to step up "tar­geted" ad­just­ments to eco­nomic pol­icy to foster sta­ble growth in the world's sec­ond-largest econ­omy, media said on Thurs­day.

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