China July factory activity shrinks most in two years: Caixin PMI
The report followed a downbeat official survey on Saturday which showed growth at manufacturing firms unexpectedly stalled, reinforcing views that the cooling economy needs more stimulus even as it faces fresh risks from a stock market slump.
Fears of a full-blown market crash have added a new sense of urgency for policymakers in Beijing, with many analysts expecting more support measures to be rolled out within weeks.
The final, private Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) dropped to 47.8 in July, the lowest since July 2013, from 49.4 in June.
That was worse than a preliminary "flash" reading of 48.2 and marked the fifth straight month of contraction, as indicated by a reading below 50.
New orders reversed into contraction last month after growing in June, while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.
The survey showed deteriorating business conditions forced companies to cut staffing levels for the 21st straight month. Factories also had to reduce selling prices to a six-month low due to increasing competition, squeezing profit margins.
"We believe the stock market panic in early July chilled economic activity, which is what the manufacturing PMIs picked up," ING economist Tim Condon said in a research note ahead of the Caixin PMI release.
But Condon said the factory weakness may be transitory if unprecedented stock market support measures from Beijing in recent weeks succeed in halting panic selling.
The official factory Purchasing Managers' Index (PMI) at the weekend was also weaker than expected, falling to 50.0 in July from June's sluggish growth reading of 50.2. The official survey focuses more on larger companies.
While growth in the services sector picked up slightly, offsetting some of the drag from persistent factory weakness, services companies reported new orders were cooling and said they were cutting jobs at a faster pace.
China Glass Holdings Ltd <3300.HK> on Friday became the latest in a growing list of firms issuing profit warnings due to weakening demand, saying it expected to post a first-half loss.
China's slowdown is also forcing many Western companies to take a hard look at their businesses there, leading many to reduce investments, costs and product lines and to tackle increasing bad debts.
?We had five fabulous years in China, of course, where we grew strong double-digit, and it has been gradually slowing down. Currently, in China we had negative order intake,? Frans van Houten, chief executive of Dutch electronics group Philips NV , told analysts last week.
?Going forward, we need to be much more modest on expectations with regard to China growth; that's just being realistic,? he said.
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