Pace slips at factories

China’s factory activity expanded at a slower pace last month as the official purchasing manager’s index fell to 50.1 from 50.4 in July, National Bureau of Statistics data showed.

China staged an impressive recovery from a coronavirus-battered slump, but momentum has weakened recently due to outbreaks, high raw material prices, slowing exports, tighter measures to tame hot home prices and a campaign to reduce carbon emissions.

“The worse-than-expected PMIs add conviction to our view that the growth slowdown in the second half could be quite notable,” Nomura economists wrote in a note.

“We expect Beijing to maintain its policy combination of ‘targeted tightening’ for a few sectors, especially the property sector and high-polluting industries, complemented by ‘universal easing’ for the rest of the economy.”

Regulatory policies may affect foreign investor sentiment in the short term, but long-term positivity for the mainland economy remains unchanged, said Meng Lei, China equity strategist at UBS.

As for the moving back of factories from pandemic-hit Vietnam to the mainland, Bruce Pang, macro strategy research head at China Renaissance Securities, said the trend has yet to be reflected in China’s PMI.

The firm thinks it is possible for China to introduce another loan prime rate cut and lower the required reserve ratio for banks, with regards to slower growth and job creation.

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