CHINA’S factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashed hopes that the world’s second-largest economy may be steadying, a private survey showed yesterday.

    The report followed a downbeat official survey Saturday which showed growth at manufacturing firms unexpectedly stalled, reinforcing views that the cooling economy needs more stimulus even as it faces fresh risks from a stock market slump.

    Fears of a full-blown market crash have added a new sense of urgency for policymakers in Beijing, with many analysts expecting more support measures to be rolled out within weeks.

    The final, private Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.8 in July, the lowest since July 2013, from 49.4 in June.

    That was worse than a preliminary “flash” reading of 48.2 and marked the fifth straight month of contraction, as indicated by a reading below 50.

    New orders reversed into contraction last month after growing in June while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.

    The survey showed deteriorating business conditions forced companies to cut staffing levels for the 21st straight month.

    Factories also had to reduce selling prices to a six-month low due to increasing competition, squeezing profit margins.

    “We believe the stock market panic in early July chilled economic activity, which is what the manufacturing PMIs picked up,” ING economist Tim Condon said in a research note ahead of the Caixin PMI release.

    But Condon said the factory weakness may be transitory if unprecedented stock market support measures from the Central Government in recent weeks succeed in halting panic selling.

    The official factory PMI at the weekend was also weaker than expected, falling to 50.0 in July from June’s sluggish growth reading of 50.2. The official survey focuses more on larger companies.

    While growth in the services sector picked up slightly, offsetting some of the drag from persistent factory weakness, services companies reported new orders were cooling and said they were cutting jobs at a faster pace.

    (SD-Agencies)

Caption:

A worker on a carbon fiber production line at a factory in Lianyungang City, Jiangsu Province on Saturday. China’s factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashed hopes that the world’s second-largest economy may be steadying, a private survey showed yesterday.Xinhua