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China’s Factory Activity Growth Hit New Low in Five Months

China saw its factory activity growth miss expectations in July due to intensifying trade tensions with the United States, bad weather and softening domestic demand.

The official Manufacturing Purchasing Managers’ Index (PMI) hit five-month low of 51.2 in July, the lowest reading since February this year, compared to 51.5 a month earlier, missing an expectation of 51.3, but remained about the 50 mark that separates growth from contraction for the 24th straight month, shows data released on Tuesday by the National Bureau of Statistics (NBS).

Manufacturing companies’ factory activities were dampened by trade tensions, rainstorms and high temperatures in July, elaborated Zhao Qinghe, official from the NBS, in a statement released with the data.

According to the statement, among 21 manufacturing industries, pharmaceutical firms and railway, marine and aerospace equipment manufactures saw strong activities, whose PMI remained above 53.

The data come as the latest sign of decelerating growth of the world’s second largest economy which has been weighted by government efforts to reducing the unsustainably high debt level as well as escalating trade tensions with the US.

Among the five sub-indices, the production sub-index fell to 53 in July from 53.6 one month earlier, while the new orders sub-index dropped to 52.3 from 53.2 in June. The sub-index for exports remained in the contraction territory at 49.8.

“Despite monetary easing and the announced fiscal stimulus, we still see strong headwinds and expect the economic growth to weaken further before staging a moderate rebound, so we expect the manufacturing PMI to decline further in coming months,” according a research note from Nomura.

Meanwhile, the sub-index for imports, viewed as a proxy for domestic demands, dipped into contraction in July, falling to a five-month low of 49.6 from 50 in the previous month.

The data shows that the manufacturing PMI for larger companies continued to expand robustly while smaller companies contracted at a faster pace, underscoring that the government’s efforts to support small businesses are yet to make a difference.

In recent years, Chinese government has been trying to rebalance its economic growth model away from the one driven primarily by investment and exports and instead to boost contribution of services and consumptions to the overall economy.

However, China’s service sectors also saw growth decelerating. China’s non-manufacturing PMI fell to 54 in July, a new low in 11 months, compared to previous 55, according to the NBS.

That comes after factory output growth slumped to a four-year low in June and retail sales decelerated, indicating that both the industrial and consumer sectors are losing momentum.

The data from the NBS shows that the composite PMI, which covers both manufacturing and services activity, slipped to 53.6 in July from 54.4 a month earlier.

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