Channel NewsAsia

China manufacturing growth eases in August: HSBC

China's manufacturing growth slowed in August, indicating a recovery in the world's second-largest economy has yet to fully take hold, HSBC said Thursday (Aug 21).

BEIJING: China's manufacturing growth slowed in August, indicating a recovery in the world's second-largest economy has yet to fully take hold, HSBC said on Thursday (Aug 21).

The HSBC preliminary purchasing managers index (PMI), which tracks activity in China's factories and workshops, slipped to 50.3 this month, the British banking giant said in a statement. The figure was down from a final reading of 51.7 in July and was the lowest for three months, it said. The indicator is a closely watched gauge of the health of the Asian economic powerhouse, with a reading above 50 indicating the sector is expanding.

"Today's data suggest that the economic recovery is still continuing but its momentum has slowed again," HSBC economist Qu Hongbin said in the statement. "Industrial demand and investment activity growth will likely stay on a relatively subdued path," he said, calling for "more policy support" to help consolidate the recovery.

Growth in both domestic and foreign new orders slowed from July while input and output prices contracted over the month, suggesting deflationary pressures, according to the statement. "Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity," Qu said.

China's economic growth accelerated to a higher-than-expected 7.5 per cent in the second quarter, up from 7.4 per cent in the previous three months, which was the worst since a similar 7.4 per cent expansion in July-September 2012. But concerns remain over whether the rebound can be sustained in the face of an unruly slowdown in the housing market and risks in the banking sector.

The recovery in the second quarter was largely policy-driven and was "not self-sustaining", Barclays analysts Chang Jian and Serena Zhou said in a research note. The HSBC preliminary PMI and other economic indicators suggested that on-the-ground activities and demand remained soft, they said.

China last week issued a batch of key economic data for July that was slightly slower compared to the previous month, with the increase in fixed-asset investment hitting a new post-2001 low.

An independent survey of Chinese property prices showed their decline accelerated in July, dropping for the third straight month. China's bank lending also plunged last month as the weakening property sector and downward pressures in the economy weighed on demand for loans.

Beijing has stressed the importance of a new growth model driven by private demand such as consumer spending, rather than by the traditional engine of large and often wasteful state-supported investment. Authorities in April began introducing a so-called "mini-stimulus" to boost growth including tax breaks for small enterprises, targeted infrastructure outlays and lending incentives in rural areas and for small companies, but has so far avoided more aggressive measures such as across-the-board interest rate cuts.

"We continue to believe that the government faces a trade-off between 'tolerating lower growth' and 'rolling out more stimulus' amid a property market correction and uncertain external demand," said the Barclays economists, adding more policy easing was "unavoidable".