BEIJING (Reuters) – China’s manufacturing sector shrank for a second straight month in June, an official factory survey showed on Sunday, raising calls for further stimulus after a series of recent indicators showed the economy was struggling to recover. It continues.
The official Purchasing Managers’ Index (PMI) for June was 49.5, unchanged from May, below the 50 threshold that separates growth from contraction and in line with the median reading of 49.5 predicted in a Reuters poll.
The PMI, a sentiment-based indicator, tends to paint a more bleak picture of the world’s second-largest economy than actual data, but the disappointing May industrial production figures suggest factory owners have reason to be concerned.
Experts say China’s exports in May beat expectations, but it’s too early to tell whether export sales are sustainable amid rising trade tensions between Beijing and Western economies. Meanwhile, domestic demand continues to weaken amid a protracted property crisis.
With consumers remaining cautious and the May holiday boost fading, the non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest since December.
Analysts expect China to introduce more policy support measures in the near term, with domestic consumption likely to be further stimulated by the government’s pledge to expand fiscal stimulus.
But despite numerous measures announced by officials since October, high local government debt and deflationary pressures have cast a dark shadow over recovery prospects, tempering the expectations of investors and factory owners.
Private sector investment increased 0.1% from January to May, down from 0.3% in the first four months, and the slump in real estate investment worsened.
China’s central bank last month announced a lending program for affordable homes aimed at encouraging the sale of unsold housing stock to better match supply with demand.
Managers are under pressure to unleash new growth engines to reduce the economy’s reliance on wealth.
Premier Li Qiang told the World Economic Forum meeting on Tuesday that the growth of new industries underpins sound economic development.
“China’s economy has maintained an upward trend since the beginning of this year and is expected to continue improving in the second quarter,” Premier Li said.
