A banner at a Chinese construction site reads Development Prosperity Kevin Frayer, Getty Images

Chinese Manufacturing Hits 15-Month Low

With its stock market struggling (down 30% in four weeks earlier this month) and its economic expansion stalling (slowest growth pace since 1990), China's financial woes continue with this latest news.

BEIJING — A key gauge of Chinese manufacturing activity tumbled to a 15-month low in July, an independent survey showed, throwing a pall over growth in the world’s second-largest economy.

The preliminary reading of Caixin’s Purchasing Manager’s Index (PMI) came in at 48.2 this month, the Chinese media group said in a joint statement with Markit, a financial information services provider that compiled the survey.

The figure was the weakest reading since 48.1 in April 2014, according to Markit’s data.

The index, which tracks activity in factories and workshops, is seen as a key barometer of the country’s economic health. A figure above 50 signals growth, while anything below indicates contraction.

July’s flash PMI was worse than the market expected, Chen Xingdong, a Beijing-based economist with BNP Paribas told AFP.

“China’s industrial economy has had a hard landing, or is in industrial recession, in my opinion,” he said.

Industrial output in the country grew just 6.8% year-on-year in June, while the producer price index — a measure of costs for goods at the factory gate — declined 4.8%, official figures showed.

“The core reason is effective demand remains weak,” said Chen, adding that China had become a less competitive exporter than many other developing countries while domestic consumption had barely improved. Third-quarter growth was “under enormous pressure”, he said. “Although I don’t think it will decelerate further, the recovery momentum is extremely feeble.”

China’s economy expanded 7.4% last year, the weakest pace since 1990, and slowed further to 7.0% in each of the first two quarters this year.

Julian Evans-Pritchard, an analyst with research firm Capital Economics, said the PMI figures suggested recent improvements in economic momentum “may have been derailed” this month by weaker foreign demand.

“We think that recent policy easing has yet to fully feed through into stronger economic activity and expect policymakers to respond to signs of weakness by stepping up support in order to prevent growth from slipping much further this year,” he wrote in a note.

Nomura economists linked the lower PMI reading to dampened short-term sentiment following China’s recent stock market rout, which saw the benchmark Shanghai Composite Index slump more than 30% in less than four weeks before stabilizing earlier this month.

“As the equity markets have stabilized, we expect growth momentum to strengthen in coming months,” they said in a report.

July’s final PMI data is due on August 3, Caixin and Markit said. Caixin took over sponsorship of the PMI survey from British banking giant HSBC this month.

Copyright Agence France-Presse, 2015

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