Manufacturing PMI slips into contraction territory

BEIJING - China's manufacturing sector posted a slight drop in July due to the flood season and weak demand, official data showed Monday.

The purchasing managers' index (PMI) came in at 49.9 in July, slightly lower than June's 50, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.

A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

NBS statistician Zhao Qinghe said floods across much of the country disrupted manufacturing activity and transportation.

Torrential rain was seen across more than half of China's territory this summer, resulting in floods, landslides and causing heavy economic losses and fatalities.

In addition, slowing market demand and weak investment sentiment in the private sector contributed to the contraction in the manufacturing sector, Zhao added.

During the January-June period, fixed-asset investment increased 9 percent year on year, 0.6 percentage points lower than that recorded between January-May. Private sector investment growth slowed further to 2.8 percent in the first six months.

The manufacturing sector contracted as the country has embarked on painstaking measures to reduce excessive industrial capacity such as steel and cement.

The sub-index for sectors with high energy consumption fell 0.5 percentage points to 47.7, the fourth consecutive monthly decline.

The sub-index measuring production stood at 52.1, 0.4 percentage points lower than a month ago.

The sub-index for new orders settled at 50.4, 0.1 percentage points lower than the previous month, declining for a fourth month in a row.

Amid gloomy manufacturing activities, Zhao observed some positive factors, as the sub-index for high-tech manufacturing hit 53.2, the highest level this year.

The Caixin General China Manufacturing PMI, an indicator of factory activity based on a private survey, added two points to post 50.6 in July, the first increase since last February, according to the data released Monday.

It showed productions, new orders and stockpiles in private sector all resumed expansion.

"With the proactive fiscal policy generating effects, China's economy is showing signs of stabilizing," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin Insight Group.

Downward pressure still remains, however, and supportive fiscal and monetary policy measures are still necessary, he added.

While the manufacturing sector slowed, the service sector expanded faster in July, presenting a new growth engine for the economy.

NBS data showed that the index for services grew 0.2 percentage points to 53.9, its highest point this year.

China's GDP expanded 6.7 percent in Q2, the lowest growth rate since the global financial crisis in early 2009.

The economy is widely expected to follow an L-shaped path as downward pressure continues and new growth momentum is yet to pick up.

At a high-level meeting held last week, China underlined the importance of proactive fiscal policy and prudent monetary policy, as well as the careful management of the speed and direction of macro-economic policy.