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Both manufacturing and service PMI weaken in August

PERFORMANCE of both China's manufacturing firms and services firms weakened in August, with the activity in state-owned industrial companies contracting for the first time in six months and that in private manufacturers falling to a 76-month low, according to surveys released today.

The official Purchasing Managers' Index, a comprehensive gauge of operating conditions in large state-owned industrial companies, landed at 49.7 last month, down from 50 in July and 50.2 in June, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

A reading above 50 means expansion while below it points at contraction. The latest figure marked the first contraction since February after marginal growth in the past six months.

The Caixin China Manufacturing Purchasing Managers' Index, a similar indicator slated toward private and export-oriented industrial companies, landed at 47.3 last month. It deteriorated from 47.8 in July and became the worst since March of 2009, although the final reading was higher than its flash reading of 47.1.

The figure has been below the demarcation line of 50 for the sixth 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 slowdown was in part related to China's enhanced efforts on industrial upgrading," Zhao said. "High energy-consuming companies reported faster deterioration in PMI, while the bad weather in summer, including those hot, rainy and windy days, hampered industrial production and exaggerated the weakness as well."

The component indices under the official PMI showed industrial production lost 0.7 points from a month earlier to 51.7 in August, suggesting a quick slowdown in industrial output, while new orders dropped by 0.2 points to 49.7, falling below the demarcation line of 50 for the second straight month.

Similar to the manufacturing sector, China's services firms also reported less vibrant activities. The official non-manufacturing PMI retreated to 53.4 in August from July's 53.9, while the Caixin Services Business Activity Index posted at 51.5 in August, down from 53.8 in July and signalled the slowest increase in the current 13-month sequence of expansion.

China's economic performance surprised the market on the upside by rendering a 7-percent increase in the second quarter, versus the previous market expectation of a 6.8-percent rise that was below the full-year target of 7 percent.

But the data in the past two months, including trade, industrial production, retail sales and fixed-asset investment, all moderated, indicating the long-awaited recovery may be very short-lived.

In a bid to shore up the economic performance and stabilize the stock market, China's central bank announced cuts in both interest rates and reserve requirements for lenders last week. It was China's fifth interest rate cut since November of last year, along with other measures like quicker implementation of investment projects such as railway and subway in many areas.




 

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