Key facts
- China's factory activity is expected to contract for the second consecutive month in August.
- The official manufacturing PMI is forecast to be 49.6, up from 49.2 in July but still below the 50 growth-contraction threshold.
- Soft domestic demand and extreme weather are identified as key factors affecting manufacturers.
- July data showed a slowdown in industrial output and retail sales.
- New yuan loans experienced a record contraction.
- The government has introduced measures like loan interest subsidies and a financing tool for local projects.
China's factory activity is anticipated to contract for a second consecutive month in August, according to a Reuters poll of 17 economists. The official manufacturing purchasing managers' index (PMI) is expected to rise to 49.6 from 49.2 in July, but it will remain below the 50-point threshold that distinguishes growth from contraction. This outlook suggests that manufacturers' sentiment is likely to stay subdued due to soft domestic demand and the impact of extreme weather events. The official data is scheduled for release by the National Bureau of Statistics on Monday. A continued contraction would highlight the challenges facing China's economy, which saw its growth slow to 4.3% in the second quarter, falling short of Beijing's annual target. While manufacturing and exports have supported growth, recent indicators point to a further loss of momentum in early second-half trading. Industrial output and retail sales slowed in July, partly due to adverse weather, and industrial profits cooled. Lending also contracted significantly. Policymakers have pledged new measures, including expanded loan interest subsidies and a 800 billion yuan financing tool for local government projects, though large-scale stimulus is considered unlikely. The private sector RatingDog manufacturing PMI is projected to increase slightly to 51.0 from 50.9 in July.