China factory activity shrinks in July, adds to pressure to reverse slump

Chinese factory activity contracted in July as export orders shrank, a survey showed Monday, adding to pressure on the ruling Communist Party to reverse an economic slowdown.

A purchasing managers’ index issued by the national statistics agency and an industry group improved to 49.3 from June’s 49 on a 100-point scale but was below the 50-point level that shows activity contracting.

China’s manufacturing PMI remained in contraction, albeit a softer pace, as the drag from the external sector deepened, Erin Xin of HSBC said in a report. That puts more pressure on Beijing to support growth through both fiscal and monetary measures.

Chinese leaders are trying to revive economic activity by promising to support entrepreneurs who generate jobs and wealth. But they have yet to give details possible tax cuts or spending and have avoided announcing a large-scale stimulus.

Demand for Chinese exports weakened after U.S. and European interest rates were raised to cool record-breaking inflation. At home, consumers are uneasy about possible job losses and are putting off big purchases. Real estate sales, an economic engine, are weak after the government tightened control on the industry’s use of debt.

An index of export orders weakened to 46.3 from June’s 46.4, well below the 50-point contraction level, according to the statistics bureau and the China Federation of Logistics & Purchasing.

Economic growth slid to 0.8 per cent over the previous quarter in the three months ending in June from 2.2 per cent in the January-March period. That is equal to annual growth of 3.2 per cent, which would be among China’s weakest in decades.