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China’s economy overall remains in expansion in terms of output, but the foundation for sustained and improved recovery still needs consolidation, a senior government statistician has said. Photo: AFP
EconomyEconomic Indicators

China’s factory activity contracts for second straight month

  • China’s factory activity remained in contraction for a second consecutive month in June, adding to problems facing the world’s No 2 economy
China's economic recovery
Vanessa Cai
Andrew Mullen
Vanessa Caiin ShanghaiandAndrew Mullenin Hong Kong
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Factory activity in China remained in contraction for a second consecutive month in June, adding to difficulties facing the world’s second-largest economy ahead of next month’s key third plenum.

The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – stood at 49.5 in June, unchanged from May, according to data released by the National Bureau of Statistics (NBS) on Sunday.

Within the official manufacturing, the new manufacturing export order subindex, meanwhile, remained unchanged at 48.3 in June.

A reading above 50 typically indicates expansion of activity, while a reading below suggests contraction.

Readings of the subindexes gauging new orders, raw material inventory and employment also remained below 50, while that for suppliers’ delivery times fell to 49.5 from 50.1 in May.

Only the production subindex remained above the watershed level of 50, but still dropped to 50.6 from 50.8 – indicating slowing manufacturing expansion.

“In terms of output, China’s economy overall remains in expansion, but the foundation for sustained and improved recovery still needs consolidation,” senior NBS statistician Zhao Qinghe said.

The new orders subindex slid to 49.5 from 49.6 in May. Zhao said the slight drop indicated “continued insufficient demand in the manufacturing market”, noting that it was the main difficulty faced by enterprises.

Elsewhere, the non-manufacturing PMI – a measure of sentiment in the service and construction sectors – fell to 50.5 in June from 51.1 in May, remaining in expansion territory for the sixth straight month.

Within the non-manufacturing PMI, the business activity index for the construction sector dropped to 52.3 from 54.4 in May.

The expansion of the construction sector has slowed
Zhao Qinghe, National Bureau of Statistics

“The expansion of the construction sector has slowed. Recent persistent heavy rainfall in many southern regions has affected construction activities to some extent,” Zhao said.

The data comes two weeks ahead of the long-anticipated third plenum. The July 15-18 session will see top Communist Party officials gather in Beijing for a conclave that has traditionally set the major economic direction for the next five to 10 years.

Despite beating expectations with 5.3 per cent year-on-year growth in the first quarter, China’s economic recovery has yet to stabilise as the country struggles to carve out a path to a stronger rebound.

The outlook is also affected by factors including a downturn in the property sector, mounting local government debt and falling foreign investment.

The third plenum is expected to endorse a wide-ranging communique covering a deepening of reforms, along with other substantial measures to send a strong signal to the markets and restore investor confidence towards building a “high-level socialist market economy” by 2035.
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