China dribbles out new hints on stimulus as weak data stokes
expectations
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[July 31, 2023] By
Joe Cash
BEIJING (Reuters) -Chinese authorities released additional policy
guidelines on Monday but no concrete measures to boost the sputtering
economy and domestic consumption, leaving investors wanting as dull
activity data heightened pressure for officials to act.
Manufacturing activity in the world's second-largest economy fell for a
fourth straight month in July while the services and construction
sectors teetered on the brink of contraction, official surveys showed,
threatening growth prospects for the third quarter.
But officials at a news conference called by the state planner gave only
vague promises to "study and formulate policies", disappointing hopes
that more stimulus was imminent after positive hints from a Politburo
meeting this month - and a stock market rally that followed.
"Looking forward, policy support is needed to prevent China's economy
from slipping into recession, not least because external headwinds look
set to persist for a while longer," Julian Evans-Pritchard, head of
China economics at Capital Economics, wrote in a note.
"Unless concrete support is rolled out soon, the recent downturn in
demand risks becoming self-reinforcing."
The world's second-largest economy grew at a lumbering pace in the
second quarter, as demand weakened at home and abroad, and some analysts
now caution that the government's economic growth target around 5% could
be at risk for a second year in a row.
Many analysts say policymakers may be reluctant to deliver any
aggressive stimulus to boost domestic consumption, however, due to
worries about growing debt risks, despite the urgency of the task.
Monday's data showed activity in China's construction sector, a large
employer amid a broad unemployment crisis, at its weakest since
COVID-19-related workplace disruptions dissipated around February,
according to the National Bureau of Statistics' official purchasing
managers' index (PMI).
"The sharp fall in construction activity is a worrying sign of a
potential death spiral in the property sector," said Xu Tianchen, senior
economist at the Economist Intelligence Unit.
"Meanwhile, we're seeing improvements in inventory levels, suggesting
that with destocking nearing its end, China's manufacturing sector
bottomed out in the second quarter," he added.
The manufacturing PMI inched up to 49.3 in July from 49.0 in June,
staying below the 50-point mark that separates expansion from
contraction.
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An employee works on the production line
of Nio electric vehicles at a JAC-NIO manufacturing plant in Hefei,
Anhui province, China August 28, 2022. China Daily via REUTERS/File
Photo
The last time that indicator pointed to contraction for more than
three consecutive months was between May and October 2019, before
the pandemic, suggesting that negative sentiment among factory
managers had become especially persistent.
The non-manufacturing PMI, which incorporates sub-indexes for
service sector activity and construction, dropped to 51.5 from
June's 53.2, while the sub-index for construction fell from a high
of 65.6 in March to 51.2 this month.
China's top leaders earlier this month pledged to step up economic
policy support, focusing on expanding domestic demand, boosting
confidence and tamping down on risks, the Politburo, a top
decision-making body of the ruling Communist Party, said.
But foreign investors say policymakers' words will need to be
matched with substantive actions, especially around fixing the
country's long-ailing and heavily indebted property sector, before
confidence recovers.
Foreigners' net stock purchases in China for the year remain around
230 billion yuan ($32.2 billion), having more or less stalled after
a net inflow of 186 billion yuan in the first quarter, as the
economy lost its post-pandemic bounce.
Multinational companies are also seeking better financial or in-kind
incentives and reassurance over an increasingly unpredictable
regulatory environment.
Monday's announced support measures from China's State Council,
which target domestic consumption in such areas as electric
vehicles, housing and tourism, were far short of the specific
stimulus investors have called for.
The PMI data reinforced the key role that domestic consumption would
need to play in reinvigorating the recovery, with a reading for new
export orders showing a stepped-up pace of decline.
The PMI's overall sub-index for new orders also showed a contraction
in July, albeit at a slower pace than the previous month, which
"suggested further downward pressure for the coming months", said
Dan Wang, chief economist at Hang Seng Bank China.
($1 = 7.1521 Chinese yuan renminbi)
(Reporting by Joe Cash; Editing by Sam Holmes and Edmund Klamann)
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