China’s factory activity contracted for the third successive month in July as the Communist Party leadership promised more measures to stimulate the economy.
The official purchasing managers’ index (PMI) edged down to 49.4 from 49.5 in June, the National Bureau of Statistics (NBS) said on Wednesday. The index of purchasing managers’ sentiment has been below 50, the figure that separates growth from contraction, for all but three months since April 2023.
A parallel gauge of activity in construction and services fell to 50.3, indicating a slowing of its rate of expansion since June.
China’s economy grew more slowly than expected in the second quarter of this year as retail sales growth slowed and prices for many items fell. The Chinese government has set a 2024 growth target of 5 per cent of gross domestic product (GDP) but the economy grew at an annualised rate of 4.7 per cent during the second three months of the year.
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The Communist Party’s 24-person politburo, which is led by Xi Jinping, called on Tuesday for a speeding up of measures aimed at boosting domestic demand. These include subsidies for consumers and businesses to trade in household appliances and industrial equipment as well as government bonds to ease the debt burden on local authorities.
“The focus of economic policies should shift more towards benefiting the people and promoting consumption,” the politburo said. “It is necessary to increase people’s income through multiple channels.”
Last week saw the surprise announcement of interest rate cuts and the People’s Bank of China, the country’s central bank, has signalled an overhaul of its monetary policy. But a succession of rate cuts and the easing of borrowing rules have until now failed to halt a three-year decline in the property market, once a major driver of growth in China.
New home prices fell at their fastest pace in nine years in June and the prolonged decline in prices has dampened consumer confidence in a country where 70 per cent of household wealth is in property. Until the downturn, the property sector accounted for about one-quarter of China’s GDP and up to 38 per cent of national fiscal revenue.
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While domestic demand has been sluggish, China’s exports have remained strong despite threats of higher tariffs from the European Union and the United States. But Beijing is under pressure from its major trading partners who fear that weak domestic demand will see a flood of cheap exports of products such as electric vehicles and other green energy technology.
The third plenum of the Communist Party, a five-yearly meeting held in mid-July, produced more than 300 measures to reform the Chinese economy. But the focus was on developing high-technology industry over the medium and long term rather than on short-term measures to stimulate the economy.
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