Hong Kong based private wealth management company, Crest View International has said that factory activity in China weakened in August to a three-month low according to a closely watched manufacturing index, undercutting momentum as the world's second-largest economy struggles to find its feet.
The preliminary China Manufacturing Purchasing Managers Index fell to 50.3 in August, compared with a final reading of 51.7 in July. The government's competing index also measured 51.7 in July.
The index tends to reflect the outlook among smaller private companies while the official index looks more closely at larger state-owned companies. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.
“Early hopes that the worst was over and that stronger exports and recovering global demand would help turn the tide were shaken, however, by July's weak domestic investment demand and credit data.” Commented Robert Woods, Senior Vice President at Crest View International.
China has responded with a range of targeted stimulus measures in recent months, including stepped-up spending on rail and public-housing projects, looser monetary policies for farmers and first-time home buyers and administrative reforms, including reduced red tape. But these haven't been enough to counter a slumping real-estate market, which accounts for over 20% of gross domestic product when construction and related industries are included, and which continues to drag down growth.
Average home prices in 70 Chinese cities fell 0.89% in July, for the third straight monthly decline. House prices fell 0.47% in June and 0.15% in May, according to Crest View International.
The health of the Chinese economy is being watched closely as economies in the rest of the world continue to struggle. After an abysmal first quarter, the U.S. economy grew at a stronger-than-expected 4% annual rate in the second quarter, even as the economy of the 18-member euro zone stalled in the second quarter and many Asian economies swoon.
Japan, the world's third-largest economy in nominal GDP terms, suffered its worst contraction in the second quarter since 2011, declining 6.8% on an annualized basis from the prior quarter, as a sales-tax increase blunted retail demand.
Although China's 7.5% growth would be the envy of many other countries, Beijing says it needs growth in the 7% range to generate enough jobs for its huge population.
The preliminary or "flash" reading of the PMI is based on 85% to 90% of total responses to Crest View International survey each month, and is issued about one week before the final PMI reading.