China Posts Sluggish Factory Growth

Growth in China›s manufacturing sector slowed in June after a better-than-expected performance in May, official data showed, as escalating trade tensions with the United States fuel concerns about a slowdown in the world›s second-biggest economy.

China›s economy has already felt the pinch from a multi-year crackdown on riskier lending that has driven up corporate borrowing costs, promoting the central bank to pump out more cash by cutting reserve requirements for lenders, Reuters reported.

The official purchasing managers› index released on Saturday fell to 51.5 in June, below analysts› forecast of 51.6 and down from 51.9 in May, but it remained well above the 50-point mark that separates growth from contraction for a 23rd straight month.

The findings are in line with recent data including credit growth, investment and retail sales pointing to slowing growth in China›s economy, as policymakers navigate debt risks and a heated trade row with the United States.

Significantly, the June new export orders index contracted for the first time since February, dropping to 49.8 from 51.2 in May.

A production sub-index fell to 53.6 in June from 54.1 in May, while a new orders sub-index declined to 53.2 from 53.8.

The PMI for large-sized firms fell to 52.9 in June from 53.1 in May, the index for medium-sized firms dipped to 49.9 from 51.0 while that for small firms rose to 49.8 from 49.6.

«Domestic demand is weakening and external demand faces pressure from escalating trade frictions between China and the United States,» said Wen Bin, senior economist at Minsheng Bank in Beijing.

Wen said he expected the central bank to continue to lower banks› reserve requirement ratios in the coming months to help ward off a sharper economic slowdown.

The central bank said on June 24 it would cut the RRR by 50 basis points for some banks to accelerate the pace of debt-for-equity swaps and spur lending to smaller firms.

After May›s official factory PMI touched an eight-month high, there have been increasing signs that China›s economy is finally slowing.

Credit growth has slowed this year as the government cracks down on many types of lending, and the tighter liquidity environment appears to be impacting growth.

On July 16, the government is due to release data on second-quarter growth in gross domestic product and other key indicators.