China’s factory activity remains in contraction amid weak economic momentum

A reading above 50 typically indicates an expansion of economic activity, whereas a reading below implies a contraction.

“China’s economic momentum likely weakened recently. The fiscal policy stance remains quite restrictive, which may have contributed to the subdued economic performance,” said Zhang Zhiwei, chief economist of Hong Kong and Shanghai-based Pinpoint Asset Management.

“To achieve an economic stabilisation, fiscal policy stance needs to be much more supportive,” he added.

Within the official manufacturing PMI, the new manufacturing export order subindex stood at 48.7 in August, compared with a reading of 48.5 in July.

But Zhang warned with the US economy slowing, exports may not be as reliable as a source for growth as they were in the first half of the year.

Elsewhere, the non-manufacturing PMI – a measure of sentiment in the service and construction sectors – stood at 50.3 in August compared to 50.2 in July.

The reading exceeded the Bloomberg survey, which had predicted a slight fall to 50.1.

The gauge remained in expansion territory for the 20th straight month.

Within the non-manufacturing PMI, the construction subindex stood at 50.6 from 51.2 in July, while the services subindex stood at 50.2 from 50 in July.

And on Wednesday, UBS cut its growth forecast for China’s 2024 gross domestic product growth from 4.9 per cent to 4.6 per cent due to a weak property market and sluggish domestic demand.

“We expect policies to become more supportive in the rest of 2024. What could come next includes faster fiscal spending, slightly more government bond issuance, a modest expansion in equipment and durable goods upgrade and trade-in and a little more monetary easing,” said Wang Tao, chief China economist at UBS.

Meanwhile, China’s official composite PMI – which tracks both the services and manufacturing sectors – stood at 50.1 from 50.2 in July.