China Factory Activity Extends Slide As Headwinds Mount

(MENAFN- Gulf Times) China's factory activity contracted for a fourth straight month in August, the latest sign the world's No 2 Economy may struggle to meet this year's economic growth target.
The official manufacturing purchasing managers' index declined to 49.1 from 49.4 in July, the National Bureau of Statistics said on Saturday. The median forecast of economists surveyed by Bloomberg News was 49.5. The reading has been below the 50-mark separating growth from contraction for all but three months since April 2023.
China's $17tn economy has been struggling as a prolonged property downturn weighs on consumers and businesses. Recent government efforts - including interest-rate cuts - to boost sentiment have yet to turn things around, meaning the economy continues to lean on manufacturing and exports to keep its growth target in sight.
But as trade tensions with the US and Europe increase, headwinds for the manufacturing sector are growing. President Xi Jinping's government is targeting gross domestic product growth of about 5% this year, a goal economists say will need accelerated spending on infrastructure and other programmes if it is to be realized.
“The fiscal policy stance remains quite restrictive, which may have contributed to the weak economic momentum,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.“To achieve a economic stabilization the fiscal policy stance needs to be become much more supportive. With the US economy slowing, exports may not be as reliable a source for growth as it was in the first half of the year.”
In a statement accompanying the data, NBS analyst Zhao Qinghe attributed the latest contraction to high temperatures, heavy rainfall and a seasonal slackening of production in some industries.
The non-manufacturing measure of activity in construction and services rose to 50.3, boosted by consumption during the summer holiday season, the statistics office said. That compares with a forecast of 50.1, and a July reading of 50.2. The composite index stood at 50.1.
Economists at banks including UBS Group AG and JPMorgan Chase & Co expect China to fall short of delivering on its growth target of around 5% this year.
Recent data showed the first contraction of loans to the real economy in nearly two decades, a surprise slowdown in fixed-asset investment and weaker-than-expected exports. Credit demand has remained sluggish as the property downturn and dour job market deter businesses and consumers from spending.
External demand is also coming under pressure, with gauges of manufacturing activity in the US and the euro area indicating a deeper slump in August.
Trade protectionism is emerging as another hurdle. The US and the European Union have moved to impose new barriers to commerce after accusing Beijing of building excess capacity in its industries through state subsidies.
The impact of Europe's new tariffs became evident already in July, as Chinese automakers registered fewer electric cars on the continent.
“Looking forward, the economy will need more policy support to pull out of its extended period of weakness. Two months of weak PMI readings so far this quarter, including the latest downward surprise in the manufacturing gauge, bode poorly for the outlook,” say Chang Shu, Chief Asia economist, and Eric Zhu, economist.
The growth headwinds have yet to result in a more forceful government response, with less than half of budgeted expenditure completed in the first seven months of 2024. On Friday, Finance Minister Lan Fo'an said the economy is still growing at a clip of 5%, describing its performance in the first half as“generally stable and progressing steadily.”
“Looking forward, China's economic development has multiple advantages and macro control policies will continue,” he said via a video message at a meeting in Cape Town of the New Development Bank, a multilateral lender established by the Brics group of emerging-market nations.

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