Business / Economy

Factory PMI stays soft, but services firm on new orders

(Agencies) Updated: 2015-07-02 07:44

A Chinese factory gauge remained sluggish last month, suggesting a tepid response from manufacturers to loosened monetary policy settings and efforts to shore up local government finances.

The official Purchasing Managers Index was 50.2 for June, missing the median estimate of 50.4 in a Bloomberg survey and unchanged from May. The services PMI, a measure of services and construction, fared better, climbing to 53.8 in June from 53.2 in May.

Numbers above 50 indicate expansion.

The People's Bank of China, the central bank, lowered benchmark interest rates over the weekend in the fourth such move since November after ashare market plunge added to challenges confronting the economy. While readings for industrial output, retail sales and property prices steadied in May, government policy responses have yet to spur a rebound.

"This is a sign of stabilization, but we haven't seen any rapid rebound yet," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "A rebound needs more policy support," including further reductions to the amount of cash banks must set aside, Ding said.

The services gauge was led by a climb in new orders.

But in terms of the factory reading, measures of new orders, new export orders, input prices and employment deteriorated in June from the prior month.

"The situation is not good. Important sub-indexes such as orders, prices, production ... all seem sluggish," said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. "The economy has stabilized, but there are still downside risks. Fiscal, industrial and monetary polices need to be more coordinated. Fiscal policies need to be more proactive so that monetary easing can be more effective."

The final reading of a separate PMI report from HSBC Holdings Plc and Markit Economics came in at 49.4 for June, down from an initial reading of 49.6.

The PBOC's easing cycle started in November, when it cut the lending rate from 6 percent to 5.6 percent. Three further quarter percentage point reductions have brought it to 4.85 percent, still high by global standards. Bloomberg's monthly GDP growth tracker has been below the government's 2015 growth goal of about 7 percent all year.

"While conditions have stopped getting much worse, they have yet to get appreciably better," Beijing-based Bloomberg economist Tom Orlik wrote in a note. "Stabilization in growth at a low rate means the recovery will look more like an 'L' than a 'V.'"

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