Weaker China factories argue for more policy support as stocks swoon

Mon Aug 3, 2015 1:19am EDT
 
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BEIJING (Reuters) - China's factory activity shrank more than initially estimated in July, contracting the most in two years as new orders fell and dashing hopes that the world's second-largest economy may be steadying, a private survey showed on Monday.

The report followed a downbeat official survey on Saturday which showed growth at manufacturing firms unexpectedly stalled, reinforcing views that the struggling economy needs more stimulus even as it faces fresh risks from a stock market slump.

Fears of a full-blown market crash have added a new sense of urgency for policymakers in Beijing, with many analysts expecting more support measures to be rolled out within weeks.

The final, private Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) dropped to 47.8 in July, the lowest since July 2013, from 49.4 in June.

That was worse than a preliminary reading of 48.2 and marked the fifth straight month of contraction.

New orders contracted after growing in June, while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.

Deteriorating conditions forced companies to cut staffing for the 21st straight month, and factories had to reduce selling prices to a six-month low due to increasing competition.

Yet some economists warned against reading too much into the gloomy July data, arguing that the factory weakness may be transitory. For one, summer storms in the manufacturing hubs of Zhejiang and Guangdong may have dented output, they said.

And while companies that had invested in the stock market were shaken by the rout, history has shown that falling share prices don't affect real spending in China, they said.   Continued...

 
Workers install the chassis along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014. REUTERS/Stringer