China’s manufacturing teetered on the edge of contraction in July, signaling a rebound in economic growth has yet to take hold.
The Purchasing Managers’ Index unexpectedly fell to 50.1 in July from 50.2 in June. The reading today from the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing was the weakest in eight months and compares with the 50.5 median estimate in a Bloomberg News survey. A reading above 50 indicates expansion.
Today’s data increase odds China will introduce more measures to stem a deceleration in the world’s second-biggest economy that may extend into a seventh quarter. Leaders of the ruling Communist Party pledged yesterday to keep adjusting policies to ensure stable growth, describing the external environment as posing “difficulties and challenges” as the jobless rate in the euro area reached the highest on record.
“It is clear that the manufacturing sector is doing very poorly and requires policy support,” Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB, said in a research note today. The chance of an interest- rate cut is “up to about a third now from a quarter yesterday,” and a reduction in banks’ reserve requirements is “fairly imminent,” he said.
Three of 24 economists surveyed had forecast a decline in the gauge from June. The report showed indexes of output and new export orders were at the lowest levels since November, while a new orders gauge showed a contraction for a third month and employment declined. A reading on imports was the weakest since February 2009.
[h=2]HSBC Index[/h]A separate purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics indicated that manufacturing contracted at a slower pace in July. The gauge, which covers more than 420 companies and is weighted more toward smaller businesses, rose to 49.3 from 48.2 in June, after a preliminary reading of 49.5 released last week.
The benchmark Shanghai Composite Index (SHCOMP) had fallen 14.5 percent from this year’s peak on March 2 through yesterday on concern the government isn’t loosening monetary policy quickly enough to stem a slowdown that’s hurting corporate earnings. The gauge rose 0.9 percent at 10:32 a.m. today after sliding yesterday to the lowest level in more than three years.
Gains in China’s currency against the U.S. dollar have stalled as export growth slowed. The yuan has weakened about 1 percent this year.
The People’s Bank of China has lowered interest rates twice starting June 8 and reduced the amount of cash banks must set aside as reserves three times since cuts began in November.
[h=2]Fine-Tuning[/h]Premier Wen Jiabao reiterated China will put more emphasis on stabilizing growth and intensify “fine-tuning” while “unswervingly” implementing property controls and prevent home prices from rebounding, the official Xinhua News Agency said in a report yesterday. Downward pressure on the domestic economy is relatively large and low global growth will persist for a “fairly long period,” the report said, citing Wen.
Authorities will probably maintain the “status quo” and government action “has already been adequate to ensure that the economy is bottoming out,” Il Houng Lee, the International Monetary Fund’s senior resident representative in China, said in a July 25 interview.
China’s economy grew 7.6 percent in the second quarter from a year earlier, the least in three years. While Nomura Holdings Inc. forecasts a recovery to 8.1 percent in the current quarter, Song Guoqing, an academic adviser to the central bank, projects a further decline to 7.4 percent.
[h=2]Mixed Signs[/h]Signs of a pickup in the economy are mixed. While June’s new local-currency loans were the highest since March, industrial companies’ profits fell for a third month.
China Rongsheng Heavy Industries Group Holdings Ltd., the nation’s largest private shipbuilder, said this week its first- half profit probably fell “significantly” on a drop in prices and orders. Japan’s Komatsu Ltd., the world’s second-biggest maker of construction equipment, yesterday warned of slower Chinese demand. The company estimated industrywide sales in China may fall as much as 30 percent this year after earlier estimating growth of as much as 5 percent.
--Nerys Avery, Zhou Xin. With assistance from Ailing Tan in Singapore and Simon Lee in Hong Kong. Editors: Scott Lanman, Nerys Avery
To contact Bloomberg News staff for this story: Nerys Avery in Beijing at [email protected]; Zhou Xin in Beijing at [email protected].
To contact the editor responsible for this story: Paul Panckhurst at [email protected]
The Purchasing Managers’ Index unexpectedly fell to 50.1 in July from 50.2 in June. The reading today from the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing was the weakest in eight months and compares with the 50.5 median estimate in a Bloomberg News survey. A reading above 50 indicates expansion.
Today’s data increase odds China will introduce more measures to stem a deceleration in the world’s second-biggest economy that may extend into a seventh quarter. Leaders of the ruling Communist Party pledged yesterday to keep adjusting policies to ensure stable growth, describing the external environment as posing “difficulties and challenges” as the jobless rate in the euro area reached the highest on record.
“It is clear that the manufacturing sector is doing very poorly and requires policy support,” Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB, said in a research note today. The chance of an interest- rate cut is “up to about a third now from a quarter yesterday,” and a reduction in banks’ reserve requirements is “fairly imminent,” he said.
Three of 24 economists surveyed had forecast a decline in the gauge from June. The report showed indexes of output and new export orders were at the lowest levels since November, while a new orders gauge showed a contraction for a third month and employment declined. A reading on imports was the weakest since February 2009.
[h=2]HSBC Index[/h]A separate purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics indicated that manufacturing contracted at a slower pace in July. The gauge, which covers more than 420 companies and is weighted more toward smaller businesses, rose to 49.3 from 48.2 in June, after a preliminary reading of 49.5 released last week.
The benchmark Shanghai Composite Index (SHCOMP) had fallen 14.5 percent from this year’s peak on March 2 through yesterday on concern the government isn’t loosening monetary policy quickly enough to stem a slowdown that’s hurting corporate earnings. The gauge rose 0.9 percent at 10:32 a.m. today after sliding yesterday to the lowest level in more than three years.
Gains in China’s currency against the U.S. dollar have stalled as export growth slowed. The yuan has weakened about 1 percent this year.
The People’s Bank of China has lowered interest rates twice starting June 8 and reduced the amount of cash banks must set aside as reserves three times since cuts began in November.
[h=2]Fine-Tuning[/h]Premier Wen Jiabao reiterated China will put more emphasis on stabilizing growth and intensify “fine-tuning” while “unswervingly” implementing property controls and prevent home prices from rebounding, the official Xinhua News Agency said in a report yesterday. Downward pressure on the domestic economy is relatively large and low global growth will persist for a “fairly long period,” the report said, citing Wen.
Authorities will probably maintain the “status quo” and government action “has already been adequate to ensure that the economy is bottoming out,” Il Houng Lee, the International Monetary Fund’s senior resident representative in China, said in a July 25 interview.
China’s economy grew 7.6 percent in the second quarter from a year earlier, the least in three years. While Nomura Holdings Inc. forecasts a recovery to 8.1 percent in the current quarter, Song Guoqing, an academic adviser to the central bank, projects a further decline to 7.4 percent.
[h=2]Mixed Signs[/h]Signs of a pickup in the economy are mixed. While June’s new local-currency loans were the highest since March, industrial companies’ profits fell for a third month.
China Rongsheng Heavy Industries Group Holdings Ltd., the nation’s largest private shipbuilder, said this week its first- half profit probably fell “significantly” on a drop in prices and orders. Japan’s Komatsu Ltd., the world’s second-biggest maker of construction equipment, yesterday warned of slower Chinese demand. The company estimated industrywide sales in China may fall as much as 30 percent this year after earlier estimating growth of as much as 5 percent.
--Nerys Avery, Zhou Xin. With assistance from Ailing Tan in Singapore and Simon Lee in Hong Kong. Editors: Scott Lanman, Nerys Avery
To contact Bloomberg News staff for this story: Nerys Avery in Beijing at [email protected]; Zhou Xin in Beijing at [email protected].
To contact the editor responsible for this story: Paul Panckhurst at [email protected]