The Caixin index of manufacturing activity declined to a six-month low of 49.2 last month, pointing to a contraction in the sector as export demand slumped. A separate report showed home sales tumbled 33.1% in July, the most in a year.
BloombergThe poor economic data came alongside a raft of pledges from the government in recent days to bolster the economy, and follow the pro-growth signals from the Communist Party’s Politburo, its top decision-making body, last week. The National Development and Reform Commission, China’s top economic planner, said Tuesday the government will boost credit to private companies and extend other funding measures to small firms. Also, the Ministry of Industry and Information Technology along with four other government agencies, including the central bank, pledged to increase financial support to smaller firms in key supply chains.
Later Tuesday, the People’s Bank of China and State Administration of Foreign Exchange said in a statement that banks will be guided to adjust existing mortgage rates downward, adding they would continue to support the stable development of the real estate market.
Mortgage interest rates and down payment ratios would also be guided lower to better meet the demand, according to the joint statement, and the central bank reiterated it will implement prudent monetary policy that’s targeted and forceful.
Top leaders late Monday called on cities to introduce policies to ensure the healthy development of their property markets.
While investors have been buoyed by the positive signals so far, stocks reversed their gains on Tuesday given the weak economic data. Economists have pointed out that Beijing has refrained from providing major monetary and fiscal stimulus and the policy measures announced so far lack any direct cash support to consumers to spur spending.
“The risk is actually having too long a list with the key measures being diluted,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, referring to the NDRC’s notice. “Implementation is essential to gradually rebuilding confidence, and it will take time.”
“What matters more is to foster an environment in which private business feels comfortable to invest, with clear and fair rules that can be expected to be abided by all parties,” he said.
Tuesday’s statement from the MIIT and other departments pledged to create a list of smaller businesses in key supply chains, identify their funding needs and encourage banks to support them. The firms would be given help in order to go public and private equity firms would be encouraged to invest in them, according to the statement.
In a notice on Tuesday, NDRC officials reiterated support for the healthy development of internet platform companies and vowed to unveil more investment projects by such companies.
Officials in recent days have also issued plans to boost consumer industries, saying on Friday that they want to increase the consumer goods sector, or so-called light industry, which covers items from home goods, food and paper-making to plastic products, leather and batteries.
What Bloomberg Economics Says…
China’s government is making good on its pledge to support the economy with a raft of new policies to boost consumption and buoy the property market. The moves increase the chances of a more robust recovery in 2H, but the balance of risks is still pointed downward. We think more is probably required to counteract the drag from the slumping housing market and weak sentiment among businesses and consumers.
-Chang Shu, chief Asia economist
The Caixin index came a day after the official purchasing managers index showed a contraction in manufacturing in July and a slowdown in services activity. Other recent high-frequency indicators also showed subdued consumer spending in the month.
BloombergChina’s manufacturing slump is weighing on Asian factories. Taiwan’s purchasing managers index slid to an eight-month low of 44.1 in July, while Japan’s dipped slightly to 49.6, according to Tuesday reports from S&P Global and au Jibun Bank. Domestic demand partly helped insulate Southeast Asia, like Indonesia and the Philippines.
