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China's economy under pressure as factory activity slows in Aug, services contract
China's businesses and the broader economy came under increasing pressure in August as factory activity expanded at a slower pace while the services sector slumped into contraction, raising the likelihood of more near-term policy support to boost growth.
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The world's second-biggest economy staged an impressive recovery from a coronavirus-battered slump, but momentum has weakened recently due to domestic COVID-19 outbreaks, high raw material prices, slowing exports, tighter measures to tame hot property prices and a campaign to reduce carbon emissions.
The official manufacturing Purchasing Manager's Index (PMI) fell to 50.1 in August from 50.4 in July, data from the National Bureau of Statistics (NBS) showed on Tuesday, holding just above the 50-point mark that separates growth from contraction.
Analysts polled by Reuters had expected it to slip to 50.2.
"The worse-than-expected August PMIs add conviction to our view that the growth slowdown in H2 could be quite notable," Nomura economists wrote in a note.
"We expect Beijing to maintain its policy combination of 'targeted tightening' for a few sectors, especially the property sector and high-polluting industries, complemented by 'universal easing' for the rest of the economy."
Nomura is not alone in its views as many other analysts also expect the central bank to deliver a further cut to the amount of cash banks must hold as reserves later this year to lift growth, on top of last month's cut which released around 1 trillion yuan (US$6.47 trillion) in long-term liquidity into the economy.
The manufacturing PMI showed demand slipped sharply, with new orders contracting and a gauge for new export orders falling to 46.7, the lowest in over a year. Factories also laid off workers, at the same pace as July.