China
June factory, services surveys fuel hopes economy
leveling out
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[July 01, 2015] By
Kevin Yao
BEIJING (Reuters) - Activity in China's
factory sector expanded slightly in June though not as much as expected,
while growth in the services sector sped up, official surveys showed,
offering some signs that the world's second-largest economy may be
starting to slowly level out after a raft of support measures.
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Beijing has rolled out a flurry of steps since last year, including
interest rate cuts and more infrastructure spending, but analysts
remain wary about the outlook given the still-weak property market,
erratic global demand for China's exports and fears of a collapse in
its wild stock market.
The government is due to release second-quarter gross domestic
product data on July 15 and many economists expect growth to dip
below 7 percent, which would be the weakest performance since the
global financial crisis.
"In general, the softness in the manufacturing sector remains,
requiring more policy recalibration", Liu Li-Gang and Zhou Hao at
ANZ said in a research note.
"Looking ahead, as real interest rates faced by Chinese companies
remain elevated, we see that further monetary easing is still highly
needed".
With demand weak at home and abroad, factory growth remained tepid,
with the reading just above the 50 point level that separates
contraction from expansion on a monthly basis.
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The official Purchasing Managers' Index (PMI) stood at 50.2 in June,
unchanged from the previous month's reading, the National Bureau of
Statistics. Analysts polled by Reuters had predicted it would edge
up to 50.3.
"Business development momentum is still insufficient, and domestic
and foreign demand remains weak", the bureau said.
The sub-index for new orders - a proxy for domestic and foreign
demand - fell to 50.1 in June from May's 50.6. New export orders
fell to 48.2 from 48.9 in May, indicating contraction in foreign
demand for a ninth straight month.
And stressed factories continued to shed jobs, with the employment
sub-index inching down to 48.1 from May's 48.2.
A private factory survey also released on Wednesday showed activity
contracted for the fourth straight month in June but at a slower
pace than in May. The official survey focuses on larger, state-owned
firms, and the private one on small and mid-sized companies which
are facing tougher financial and operating conditions.
The central bank cut lending rates on Saturday for the fourth time
since November and trimmed the amount of cash that some banks must
hold as reserves, stepping up efforts to support the slowing
economy.
ANZ expected the central bank to further cut interest rates by
another 25 basis points (bps) in the third quarter, and cut banks'
reserve requirement by an additional 100bps in the second half.
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SERVICES SHINES
Meanwhile, the official services PMI rose to 53.8 from May's 53.2,
the bureau said, suggesting growth in that sector quickened slightly
in June, offsetting some of the broader economic drag from ailing
factories.
The new orders sub-index of the services PMI rose to 51.3 in June
from 49.5 in May and the employment sub-index inched up to 49.7 from
May's 47.6 as the pace of job shedding eased.
The services sector has accounted for the bigger part of China's
economic output for at least two years, with its share rising to
48.2 percent last year, compared with the 42.6 percent contribution
from manufacturing and construction.
"The services sector is also cooling, except the financial sector
that has been supported by the stock market", said Lin Hu, an
economist at Guosen Securities in Beijing.
Lin believed rising trading volume in the stock market may have lent
more support to the economy in the second quarter, though some
analysts fear that a further stock plunge may hit consumer
confidence and spending and put added strain on the financial
system. Weighed down by a property downturn, factory overcapacity
and high levels of local debt, China's economic growth in 2015 is
seen slowing to around 7 percent - the weakest annual expansion in a
quarter of a century.
Property prices and sales have also shown signs of improving in
recent months, at least in big cities, but investment remains weak
with high local government debt levels and bureaucratic delays
thwarting Beijing's efforts to get big infrastructure projects off
the ground.
(Editing by Kim Coghill)
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