Weak China manufacturing data adds to pressure on economy

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Manufacturing activity has contracted in China for the third consecutive month, adding to pressure on Beijing’s policymakers to tackle a slowdown across the world’s second-largest economy.

The official manufacturing purchasing managers’ index was 49 in June, slightly up from 48.8 in May, but still showing a month-on-month contraction in activity.

While China’s economy is growing compared with last year, when the government’s three-year crusade against Covid-19 reached its most intense period before being abruptly abandoned, the pace of its recovery has lost steam in recent months.

The country’s vast property sector, which accounts for more than a quarter of activity, is in a prolonged slowdown, while youth unemployment has surpassed 20 per cent and trade is falling against a weaker global economic backdrop. Exports shrank 7.5 per cent year on year in May.

Friday’s official PMI data showed the services sector, which came under sustained pressure during Covid restrictions, is growing on a month-on-month basis, with a reading of 53.2 in June. But it grew at a slower pace compared with May’s reading of 54.5 and missed analysts’ expectations.

Beijing is targeting gross domestic product growth of 5 per cent this year, its lowest official target in decades after growth was just 3 per cent last year.

Premier Li Qiang said at a World Economic Forum event in Tianjin this week that growth in the second quarter would surpass the 4.5 per cent recorded in the first three months of the year. “We are on track to hit the growth target we set for the year,” Li said.

“We have the ability to achieve steady growth of the Chinese economy,” he said in comments that also took aim at attempts by the US and Europe to “de-risk” links to China at a time of deteriorating geopolitical relations.

The People’s Bank of China, the country’s central bank, this month cut interest rates, but authorities have not unleashed any major fiscal or monetary stimulus measures in response to months of disappointing economic data.

Economists widely anticipate a clutch of additional measures, from spending on infrastructure to potential relaxations of property purchasing restrictions.

Analysts at Citi noted that a construction PMI figure of 55.7, while indicating expansion in the sector, was at its lowest level this year and reflected wider property weakness.

They added that an expected meeting of the politburo, the Chinese Communist party’s top policymaking body, in July was likely to be “a window to discuss a more comprehensive package”.