China's mfg activity seen extending decline for 3 straight month in July

China's factory activity likely shrank for a third month in July, a Reuters poll showed on Monday, keeping alive expectations officials will need to release further stimulus as a protracted property crisis and job insecurity drag on growth.
 

The official purchasing managers' index (PMI) was forecast at 49.3, down from June's reading of 49.5, according to the median forecast of 31 economists in the poll. The 50-point mark separates growth from contraction in activity.
 

The world's second-largest economy grew much slower than expected in the second quarter, with the consumer sector a particular cause for concern. Retail sales growth sank to an 18-month low as deflationary pressures forced businesses to slash prices on everything from cars to food to clothes.
 

 

While half of the 300 billion yuan ($41.40 billion) in ultra-long treasury bonds China's state planner announced on Thursday will be allocated to support a programme of consumer trade-ins, that amount is seen as too little to meaningfully boost economic recovery, as it is equivalent to just 0.12 per cent of economic output and 0.3 per cent of 2023's retail sales.
 

Solid Chinese exports have provided some support to factory managers in recent months and propped up progress towards the government's growth target of around 5 per cent, but as a growing number of trade partners mull import tariffs, the jury is out on whether that boost can be sustained.
 

Outbound shipments grew at their fastest pace in 15 months in June, while imports unexpectedly shrank, suggesting domestic demand remained weak and manufacturers were frontloading orders to get ahead of tariffs from trade partners.
 

Depressed domestic consumption is closely related to falling property valuations that have left families feeling poorer as 70 per cent of household wealth is in real estate.
 

New home prices fell at their fastest pace in nine years in June.
 

Analysts expect the government to implement another round of property-supporting policy measures after a meeting of the Politburo, a top decision-making body of the ruling Communist Party, expected to take place this week.
 

The official PMI will be released on Wednesday. The private sector Caixin factory survey will be released on Aug. 1.
 

Analysts expect its reading to edge down to 51.5 from 51.8.

No major New Stimulus
 

One of the main reasons people are not spending in China is 70% of household wealth is held in real estate, and house prices fell at their fastest pace in nine years in June.
 

That problem is compounded by the fact that the property sector used to constitute around one quarter of the economy, making it a key growth driver.
 

But the PMI's construction sub-index grew more slowly in July, pointing to diminishing demand for new apartments and other building projects.
 

The official non-manufacturing purchasing managers' index (PMI), which includes services and construction, slowed to 50.2 in July from 50.5 a month prior.
 

Analysts were divided over the extent to which policymakers would reconsider stronger stimulus as the economy continues to show few signs of a turnaround.
 

Wang Tao, UBS chief China economist and head of Asia economics, said further cuts to the amount commercial banks must hold in reserve and lower borrowing costs could be on the cards, but did not see policymakers picking up a new playbook.
 

"We expect modest policy support ahead in the rest of 2024, which may largely follow through previous policy settings in the past several months, but with no major new stimulus," she added.

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