Published On: Tue, Jun 23rd, 2015

China’s Factory Activity Shrinks Again in June

Factory activity in the world’s second largest economy, China, contracted for a fourth month in a row, but the sector did show signs of stabilising in June.

China's factory activity

The HSBC/Markit flash manufacturing purchasing managers’ index (PMI) was at a three-month high of 49.6, up from 49.2 in May and beat forecasts of 49.4.

But, the preliminary reading stayed below the 50 mark which separates contraction from expansion.

Analysts said there were growing calls for economic stimulus to boost growth.

The uptick in activity led new orders to return to positive territory.

Exports also fell at a slower than expected pace, but companies cut more jobs – jumping to the fastest pace of layoffs in more than six years.

Markit economist Annabel Fiddes said the private survey showed a mixed picture about the state of China’s vast manufacturing sector.

“On one hand, the sector shows signs of improvement as output stabilised amid a slight pick up in total new work, while purchasing activity also rose slightly over the month,” she said.

“On the other hand, manufacturers continued to cut staff. This suggests companies have relatively muted growth expectations.”

She added to the calls for more stimulus by policymakers to ramp up growth and job creation in the second half of the year.

More easing ahead?

China has already embarked on a series of easing measures to spur activity in the Asian giant. It has cut the cost of borrowing three times in the last six months.

In May, the central bank also cut its bank reserve requirement ratio by one percentage point to allow banks to lend out more money.

All of this comes as growth slowed to a six-year low of 7% in the first quarter of this year.

Evan Lucas, market strategist at trading firm IG said another contraction in factory activity will bring more speculation of a fourth cut to interest rates in eight months.

However, he added that the country’s central bank has been “very quiet” and not given any indication on whether it will continue to ease monetary policy.