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BEIJING: China’s economy lost more steam in June with manufacturing activity contracting again and other sectors failing to build momentum, as calls grow for more policy support.
The official manufacturing purchasing managers’ index registered a reading of 49, falling into contraction for a third straight month, according to National Bureau of Statistics data published Friday. The non-manufacturing gauge — which measures activity in construction and services — slipped to 53.2, still above the 50 mark signaling expansion but at a weaker pace than the previous month.
“This set of PMI numbers was hardly comforting for the Chinese economy,” Citigroup Inc economists including Yu Xiangrong wrote in a note. Demand for factory goods remained a concern and industrial deflation showed “almost no sign of easing,” they said, while the services recovery may have “passed its peak.”
China’s benchmark CSI 300 Index of stocks gained 0.6% as of 2:55 p.m. local time after declining for two days, outperforming their Asian peers. The offshore yuan gained 0.1%, edging up from its weakest level since November.
Speculation about potential policy support has been mounting as the recovery for the world’s second-largest economy loses traction, showing weakness in everything from consumer spending to the housing market, exports and infrastructure investment.
The People’s Bank of China cut policy interest rates this month for the first time in nearly a year, signaling looser monetary policy. But officials have been slow to introduce anything more comprehensive.
The signs of a slowing recovery “require a more forceful package to support the economy to be introduced at a sooner date,” said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle Inc.
The June NBS data signaled more trouble for small companies, with activity for those firms shrinking, while operations at larger ones expanded. Separate figures published by the Ministry of Finance on Friday showed state-owned enterprises making more profit so far this year from the same period in 2022, while private sector firms have struggled.
The easy liquidity environment has mostly benefited state-owned enterprises, industry leaders and innovative firms, while private and small company are still struggling to access funds, Liu Yuanchun, a prominent economist who’s previously consulted with top officials including President Xi Jinping, wrote in an article earlier this month.
Also of concern is the health of the services industry, a major employer of young workers. A subindex gauging employment in the non-manufacturing sector slid to 46.8 in June from 48.4 the previous month. Less hiring risks exacerbating a youth jobless rate that is already at a record high while also further dampening household income confidence.
More Chinese are seeing their income dropping, and they expect housing prices to fall in the coming three months, according to a PBOC survey of depositors released Thursday. That’s a worrying sign for the struggling economy as it will likely undermine housing demand and hurt construction activity.
Expansion in construction activity slowed in June. A sub-gauge in Friday’s data showed a reading of 55.7, a weaker pace than May’s 58.2. While government-led infrastructure development has supported growth in that sector, renewed stress in the property sector is taking a toll, HSBC Holdings Plc economists including Erin Xin wrote in a note.
Announcements of potential support may come by next month when the Communist Party’s all-powerful Politburo meets to discuss the economy, or even sooner.
Still, experts largely project stimulus this year will be moderate, with strains from cash-strapped local governments and concerns about the impact of more rate cuts on the yuan among the factors limiting the scope for support.
Chinese authorities “need a holistic assessment and recipe to stabilize confidence,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. He said weak confidence is beyond what more cash injections or interest rate cuts can address.
What Bloomberg economics says …
“Weakness in services and a slowdown in construction dragged down growth in the non-manufacturing sector. A slightly narrower contraction in manufacturing was nothing to cheer about — that only reflected more working days in the month. The People’s Bank of China trimmed rates in June. Friday’s weak data reinforce the case for further easing.”
— Chang Shu and Eric Zhu, economists



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