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Weak China PMI in June

CHINA'S manufacturing activity remained lukewarm in June, while the service sector improved slightly, indicating complications in the world’s second-largest economy, according to surveys released yesterday.

The official Purchasing Managers' Index, a comprehensive gauge of operating conditions in large state-owned industrial companies, landed at 50.2 last month, the same as that in May, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

A reading above 50 means expansion. The latest figure marked the fourth consecutive month for an expansion but pointed to small and stalled pace of growth.

The HSBC China Manufacturing Purchasing Managers' Index, a similar indicator slated toward private and export-oriented industrial companies, landed at 49.4 last month, up from 49.2 in May but lower than June's flash reading of 49.6.

It has been below the demarcation line of 50 for the fourth straight month after a brief rebound in February.

Zhao Qinghe, an analyst at the bureau, said China's domestic demand remained weak and the manufacturing sector had insufficient growth impetus.

“The expansion remained marginal,” Zhao said. “Downward pressure prevailed, including risks derived from tight cash flow, weak market demand, rising labor costs and weak trade.”

The component indices under the official PMI showed industrial production remained unchanged at 52.9 in June, suggesting sluggish output, while new orders dropped by 0.5 points to 50.1, and input prices lost 2.1 points to 47.3, led by soft steel and petrochemical costs due to weak demand.

Zhou Hao, an economist at Australia & New Zealand Banking Group Co Ltd, said the softness in the manufacturing sector continued to grow, requiring more policy recalibration.

China’s central bank announced another interest rate cut and a targeted reduction of reserve requirement ratio on Saturday. The interest rate cut was the fourth one since November of last year, and it was the first time for it to come with an RRR cut, indicating the strength of such supportive policies.

"China's monetary policy stance has become more accommodative," Zhou said. "But we see that further easing is still needed based on the economic performance.

The profits of China’s industrial companies expanded at a slower pace in May after it returned to grow for the first time in seven month in April, confirming the needs for the just-announced easing monetary policies.

China's economic growth slowed to 7 percent in the first three months, the weakest quarterly expansion in six year which prompted the central bank to take surprisingly intensive policy-easing actions in the past few months including cuts of reserve requirement ratio and interest rates.

Some economists predicted the growth rate in the second quarter could fall below the targeted 7 percent increase.

A little bit of relief came with the survey results that the non-manufacturing PMI, a counterpart for the service sector, rose 0.6 points from a month earlier to 53.8 in June, showing signs of a rebound.




 

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