Tue, Aug 02, 2016 - Page 11 News List

Chinese factory output unexpectedly dropping

Reuters, BEIJING

Activity in China’s manufacturing sector last month eased unexpectedly as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree.

While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey yesterday suggested China’s overall industrial activity remains sluggish at best.

Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

Other readings yesterday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter.

The official purchasing managers’ index (PMI) last month eased to 49.9, from the previous month’s 50, below the 50-point mark that separates growth from contraction on a monthly basis.

While last month’s reading showed only a slight loss of momentum, Nomura chief China economist Yang Zhao (趙揚) said it might be a sign that the impact of stimulus measures earlier this year might already be wearing off.

That has created a dilemma for Beijing, as the Chinese Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

“The government has realized the downward pressure is great, but they have also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging,” Zhao said.

Heavy flooding, particularly along the Yangtze River, contributed to last month’s manufacturing contraction, along with slowing demand and the cutting of overcapacity in some industries, the Chinese National Bureau of Statistics said.

Falling activity at smaller firms was also a key reason for last month’s poor figure, the bureau said, but added that performance at larger companies improved, a sign that the government is becoming more reliant on big state firms to generate growth.

“Today’s data do not bode well for GDP growth in the second half,” ANZ economists Louis Lam (林慕爾) and David Qu (曲天石) wrote in a note.

Fiscal policy would be the key tool for boosting growth in coming months, while the central bank was expected to keep its policy settings accommodating, they added.

While many analysts believe the world’s second-largest economy might be slowly stabilizing, conditions still look patchy.

Industrial profits rose at the fastest pace in three months in June, but gains were concentrated in just a few industries, including electronics, steel and oil processing.

Spurred by rebounding prices and stronger construction demand, China’s steel output and exports have been near record levels. However, it is one of the key sectors being targeted by officials for capacity cuts and tougher pollution controls.

An official survey of the services sector was more upbeat, showing growth last month accelerated to 53.9 from 53.7 in June.

However, it, too, contained several worrying notes, with construction services growth solid, but cooling, and the property services sector weakening, adding to worries that China’s housing boom might have peaked.

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