BEIJING (Reuters) – China’s manufacturing sector shrank for a second month in June, an official factory survey showed on Sunday. This kept calls for further stimulus measures alive after a series of recent indicators showed the economy was struggling to get back on its feet.
The official purchasing managers’ index (PMI), which stood at 49.5 in June, was unchanged in May, below the 50 threshold that separates growth from contraction and in line with the average forecast of 49.5 in a Reuters poll.
The PMI, a sentiment-based indicator, typically paints a bleaker picture of the world’s second-largest economy than hard figures. However, disappointing industrial production figures in May indicate that factory owners have some reasons to worry.
Although Chinese exports beat expectations in May, experts say the jury is still out on whether export sales are sustainable amid growing trade tensions between Beijing and Western economies. Meanwhile, a protracted real estate crisis continues to hamper domestic demand.
As consumers remained cautious and positive developments in the May holidays waned, the PMI for non-manufacturing, which also includes services and construction, fell to 50.5 from 51.1 in May. That is the lowest level since December.
Analysts expect China to take more policy measures in the near term, while the government’s pledge to strengthen fiscal stimulus is expected to lift domestic consumption.
But high local government debt and deflationary pressures are casting a long shadow over recovery prospects, despite a slew of measures taken by officials since last October, dampening expectations of investors and factory owners.
Private sector investment rose 0.1% from January to May, down from 0.3% in the first four months alone, while the slump in real estate investment worsened.
China’s central bank announced an affordable housing refinancing program last month to accelerate the sale of unsold homes so supply better matches demand.
Officials are under pressure to kick-start new growth engines to reduce the economy’s dependence on real estate.
Prime Minister Li Qiang said at a meeting of the World Economic Forum on Tuesday that the growth of new industries supports healthy economic development.
“Since the beginning of this year, China’s economy has been on an upward trend… and this growth is expected to continue steadily in the second quarter,” Li said.
(Reporting by Joe Cash and Ellen Zhang; Editing by William Mallard)
