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July 2, 2015

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Further easing still required after tepid PMI

CHINA’S manufacturing activity remained lukewarm in June, with analysts concerned that the growth pace was sluggish, and called for a recalibration in policies, according to surveys released yesterday.

The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in large state-owned industrial companies, was 50.2 last month, flat from 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 straight month of growth but pointed to weak pace of expansion.

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

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

Zhao Qinghe, a bureau analyst, said China’s domestic demand remained weak and manufacturing 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 sluggish trade.”

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

Zhou Hao, an economist at Australia & New Zealand Banking Group Co Ltd, said the manufacturing sector continued to soften more and policies need to be recalibrated.

On Saturday the central bank cut interest rates for a fourth time since November 2014 and trimmed bank reserve requirement ratio for the first time.

“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.”

China’s economic growth slowed to 7 percent in the first quarter, the weakest quarterly expansion in six years.




 

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