China is facing a challenging economic situation as its manufacturing activity fell for a second consecutive month in June. Additionally, services activity also reached a five-month low. The National Bureau of Statistics (NBS) reported a purchasing managers’ index (PMI) of 49.5 in June, which was consistent with the previous month and below the 50-mark indicating contraction.
According to senior economist Xu Tianchen, the actual industrial activity in China may be stronger than indicated by the data. This discrepancy is particularly evident in the export sector, which has been a key economic driver this year. However, external and domestic demand are still insufficient to absorb China’s manufacturing capacity, leading to challenges in producer prices.
While the production sub-index showed growth in June, other key indicators such as new orders, raw material stocks, employment, supplier delivery times, and new export orders were all in contractionary territory. The ongoing trade tensions between Beijing and Western economies raise concerns about the sustainability of China’s export sales. Additionally, a prolonged property crisis is dampening domestic demand in the country.
Analysts anticipate that China will implement additional policy support measures in the short term to address the economic challenges. Fiscal stimulus is expected to play a significant role in boosting domestic consumption. However, limitations in monetary policy easing due to pressure on the Chinese currency pose constraints on immediate actions.
Despite various measures rolled out by officials since last year, recovery prospects in China are overshadowed by high local-government debt and deflationary pressures. The central bank’s recent announcement of a relending program for affordable housing highlights efforts to balance supply and demand in the property market. Premier Li Qiang emphasized the importance of developing new industries to support economic growth.
Economists and investors are closely monitoring the upcoming Third Plenum scheduled for July, where China’s top Communist Party officials will gather to discuss key economic policies and strategies. The outcome of this meeting will likely have a significant impact on China’s economic direction and prospects for growth in the coming years.
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