China’s factories seen extending activity declines in June: Reuters poll By Reuters

By Joe Cash

BEIJING (Reuters) – China’s manufacturing activity likely contracted for a second month in June, a Reuters poll showed on Thursday, keeping alive calls for fresh stimulus after a string of recent indicators showed the economy struggling to get back on its feet.

The official purchasing managers’ index (PMI) was forecast at 49.5, unchanged from April, according to the median forecast of 19 economists in the poll. The 50-point mark separates growth from contraction in activity.

The highest forecast in the poll was 50.0 from DZ Bank, while China’s Industrial Bank returned the lowest reading of 49.1.

The PMI, a sentiment-based survey, has at times presented a gloomier picture of the economy than some of the harder data, but disappointing May industrial output and profits numbers suggest factory owners have every reason to be worried.

China’s exports topped forecasts month in May, suggesting manufacturers are managing to find buyers overseas, but experts say the jury is still out on whether the export sales are sustainable. Not least because of growing trade tensions between Beijing on one side and Washington and Brussels on the other.

All the while, a protracted property crisis continues to drag on domestic demand.

Retail sales last month beat forecasts, but were aided by a five-day public holiday boost, while public sector investment grew just 0.1% in the January-May period, reflecting weak consumer and investor confidence.

Analysts expect China to roll-out more policy support measures in the short-term, while a government pledge to boost fiscal stimulus is seen helping kick domestic consumption into a higher gear.

Policy support and strong exports should help the $18.6 trillion economy grow 5.5% this year, said Julian Evans-Pritchard, head of China Economics at Capital Economics, although he cautioned he was “less sanguine about the medium-term outlook.”

Officials are under pressure to fire up new growth engines to reduce the economy’s reliance on property, an objective analysts say may be incompatible with keeping growth steady at around 5%, which is the target for this year.

Chinese Premier Li Qiang on Tuesday told delegates at a World Economic Forum meeting in the northeastern city of Dalian the rapid growth of new industries has strongly sustained healthy economic development.

“Since the beginning of this year, China’s economy has maintained an upward trend…and is expected to continue to improve steadily over the second quarter,” Li added.

The official PMI will be released on Sunday. The private-sector Caixin factory survey will be released on July 1 and analysts expect its reading to edge down to 51.2 from 51.7.