China's manufacturing sector is expected to contract for a third consecutive month in July, according to a Reuters poll released on Monday. The official purchasing managers' index (PMI) is forecast to decline to 49.3, indicating a further slowdown in factory activity. China's economy saw slower-than-expected growth in the second quarter, with the consumer sector posing a particular concern. Retail sales growth hit an 18-month low due to deflationary pressures, leading businesses to cut prices on various goods. The announcement of 300 billion yuan ($41.40 billion) in ultra-long treasury bonds by China's state planner aims to support a consumer trade-in programme. However, this amount is considered insufficient to significantly enhance economic recovery, representing only 0.12 per cent of economic output and 0.3 per cent of 2023's retail sales. While Chinese exports have been strong, providing some relief to factory managers and aiding progress towards the government's growth target of around five per cent, uncertainties arise as more trade partners consider imposing import tariffs. Outbound shipments surged in June, marking the fastest growth in 15 months, while imports unexpectedly declined. This indicates weak domestic demand and manufacturers rushing to place orders before tariffs from trade partners kick in. The drop in imports reflects subdued consumer spending, linked to declining property values that have eroded household wealth, with 70 per cent tied up in real estate. New home prices saw their steepest decline in nine years in June. Analysts anticipate the government will introduce additional property-supporting policies following a Politburo meeting of the ruling Communist Party this week. The official PMI is set for release on Wednesday, with the private sector Caixin factory survey following on Aug. 1. Expectations are for the Caixin reading to dip to 51.5 from 51.8. Attribution: Reuters
