China’s factory activity contracted for a second straight month last month, signaling weakness in an area that Beijing is betting on to drive the economy.
The official manufacturing purchasing managers’ index was at 49.5, the Chinese National Bureau of Statistics (NBS) said yesterday. That was the same reading as the previous month and in line with economists’ prediction in a Bloomberg survey. Any number above 50 points is considered an expansion.
A sub-index of new orders at factories inched lower to 49.5 as demand weakened, while a gauge measuring new export orders was unchanged at 48.3.
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Meanwhile, the non-manufacturing measure of activity in construction and services fell to 50.5, the statistics office said. That compares with a forecast of 51, and a May reading of 51.1.
In a statement accompanying the data, NBS analyst Zhao Qinghe (趙清河) said “the foundation for sustained recovery and improvement still needs to be consolidated.”
Trade tensions have added to the challenges. The US and the EU — two of China’s biggest export markets — have sounded the alarm over a surge in cheap Chinese exports, which they say are unfairly bolstered by Beijing’s massive subsidies. Both have threatened to impose tariffs on China’s electric car exports, along with other sectors where Beijing is leading on price.
The drop in the construction index to 52.3, from 54.4 in May, marked its weakest print since July last year and suggests that state infrastructure spending, a key support for the recovery, lost steam, Bloomberg Economics said. That suggests bolder stimulus might be needed.
“Policymakers will likely focus on fiscal measures to support the economy, given the constraints on monetary easing due to currency pressures,” Guotai Junan International Holdings Co (國泰君安國際控股) economist Zhou Hao (周浩) said.
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