China Factory Activity Weakens; Services Growth Improves

22:06, 30th June 2016

(RTTNews) - China's manufacturing activity remained weak, largely reflecting subdued foreign demand, while the services sector expanded notably in June.

The official factory Purchasing Managers' Index came in at 50 in June, in line with expectations, but down from 50.1 in May, data from the National Bureau of Statistics and the China Federation of Logistics and Purchasing showed Friday.

Meanwhile, the Caixin manufacturing PMI dropped to 48.6 in June from 49.2 in May, signaling the biggest contraction in four months, survey results from Markit revealed.

The score was expected to remain unchanged in June. A reading below 50 indicates contraction in the sector.

On the other hand, the official non-manufacturing PMI rose to 53.7 from 53.1 a month ago.

Julian Evans-Pritchard at Capital Economics said the buoyant property market and surge in state investment is still supporting the construction sector.

Given the recent resilience of the service sector and signs of strength in construction, the economist said he is not overly concerned about the near-term outlook for China's economy.

In the manufacturing sector, production decreased at a faster pace in June as poor market conditions and a drop in new work forced manufacturers to cut output, Markit said. A part of the weakness was driven by softer foreign demand, with export sales easing for the seventh consecutive month.

Manufacturing employment in the sector has fallen in each of the past 32 months. Meanwhile, backlogs of work rose, with some respondents linking growth to new product developments.

After a three-month sequence of inflation, average cost burdens faced by Chinese goods producers fell in June. That said, the rate of reduction was marginal overall.

At the same time, prices charged by Chinese manufacturers were broadly unchanged since the previous month.

Zhengsheng Zhong,the director of Macroeconomic Analysis at CEBM Group, said that economic conditions in the second quarter were considerably weaker than in the first quarter, which means there has been no easing of the downward pressure on growth.

Zhengsheng urged the government to strengthen its proactive fiscal policy while continuing to follow prudent monetary policy, in order to avert a sharp economic decline.