China’s Manufacturing Activity Contracts for Fifth Straight Month in August

Introduction

China’s manufacturing activity contracted for a fifth straight month in August, according to an official survey. This puts pressure on officials to provide support to shore up economic growth amid soft demand both at home and abroad.

Positive Signs

• New orders reverted to expansion for the first time in five months.
• Factory owners indicated that producer prices were improving for the first time in seven months.

PMI Data

The official purchasing managers’ index (PMI) rose to 49.7 from 49.3 in July, according to the National Bureau of Statistics. However, it remained below the 50-point level demarcating contraction from expansion. The reading was above a forecast of 49.4.

Impact on Growth

The world’s second-largest economy risks missing Beijing’s annual growth target of around 5% due to a worsening property slump, weak consumer spending, and tumbling credit growth. Major banks have downgraded their growth forecasts for the year.

Government Measures

China has announced a halving in stock-trading stamp duties and approved guidelines for affordable housing to improve access to first-home mortgages. Some state-owned banks will also lower interest rates on existing mortgages. However, analysts anticipate no growth in home prices this year.

Stimulus Concerns

Many analysts see only a slim chance for any drastic stimulus amid concerns over mounting debt risks. Policymakers remain under pressure to boost domestic demand as the global economy continues to slow.

Outlook

The non-manufacturing PMI fell to 51.0 from July’s 51.5, led by the continuing fall in services activity. The composite PMI, including both manufacturing and non-manufacturing activity, rose to 51.3 from 51.1. The actual implementation and effectiveness of policy support will be the key indicator to watch going forward.

About the Author

Joe Cash reports on China’s economic affairs for Reuters. He covers domestic fiscal and monetary policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Joe studied Chinese at the University of Oxford and is a Mandarin speaker.