By Joe Cash
According to a recent Multibagger poll, China's factory activity is likely to contract for the fourth consecutive month in August. This underscores the urgent need for officials to shift their focus towards providing more stimulus to households rather than investing in building projects.
The forecasted official purchasing managers' index (PMI) for August is 49.5, slightly higher than July's reading of 49.4. The 50-point mark on the index separates growth from contraction in economic activity.
China's $19 trillion economy has faced challenges at the start of the second half of the year, with weak exports, declining prices, and reduced bank lending in July indicating a slowdown in demand.
Despite expectations of a recovery after the easing of COVID restrictions in 2022, the world's second-largest economy has struggled to pick up momentum.
Beijing recently hinted at a shift in its approach by moving away from focusing solely on infrastructure projects. While there have been some positive signs in retail sales data, more details are needed on how China plans to revitalize its consumer market.
The decline in the property sector, which accounts for a significant portion of household wealth, has dampened consumer spending. With policies aimed at restoring confidence showing limited impact, China's new home prices fell sharply in July.
Analysts have welcomed efforts to boost consumer spending but caution that additional policy measures may be necessary to achieve the government's annual growth target of around 5%.
The official PMI for August is set to be released on Saturday, with the private sector Caixin factory survey following on Sept. 2. Analysts anticipate a slight improvement in the Caixin reading to reach 50.0.
($1 = $1.0000)
Analysis:
In summary, China's factory activity is expected to contract in August, highlighting the need for stimulus measures to support the economy. The focus on boosting household consumption over infrastructure projects reflects a shift in government strategy. However, challenges in the property sector have weighed on consumer spending, necessitating further policy interventions. Analysts are cautiously optimistic about the prospects for economic recovery but stress the importance of additional measures to achieve growth targets. The upcoming PMI data releases will provide more insights into the state of China's economy and the effectiveness of policy responses.