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China July official PMI likely to show factories struggling for traction

[BEIJING] China's manufacturing sector struggled for growth in July, a Reuters poll showed, adding to expectations that Beijing will step up measures to boost growth in the world's second-largest economy.

The official manufacturing Purchasing Managers' Index (PMI) is expected to be 50.0 in July, the same as in June, according to the medium forecast of 23 analysts polled by Reuters.

The neutral 50.0 mark separates expansion in activity from contraction on a monthly basis.

After expanding for three consecutive months from March to May, growth in China's factory sector stalled in June, suggesting a bounce in activity is fizzling out.

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Second-quarter economic data was slightly stronger than expected, thanks to a housing boom and government infrastructure spending spree that are boosting demand for materials from cement to steel, but private investment growth has shrunk to record lows, suggested renewed weakness ahead.

Profits earned by China's industrial firms grew at the fastest pace in three months in June, data showed on Wednesday, suggesting government spending is helping to ease financial strains for some companies.

But profit gains were spread unevenly across industries and were concentrated in just a few sectors including electronics, steel and oil processing.

The data also showed debt levels continued to grow, and the statistics bureau said some firms are facing difficulty getting capital.

Sheng Songcheng, director of the Survey and Statistics Department at the People's Bank of China (PBOC), said recently that China has already fallen into a "liquidity trap" where increased money supply is being absorbed by firms that are not in turn investing the cash.

China's top leaders pledged on Tuesday to keep economic growth steady in the second half of the year, while creating favourable conditions for supply-side reforms, state media reported.

Authorities will continue to implement a proactive fiscal policy and a prudent monetary policy, Xinhua said.

The official manufacturing PMI data will be released on August 1, along with the official services PMI.

Services companies reported a strong pick-up in new business in May, particularly for construction firms, but it was not enough to offset the downdraft from the ailing industrial sector.

The Markit/Caixin PMI, a private gauge of manufacturing activity, also is due in Aug. Analysts expect it to rise to 48.8, up from 48.6 in June, but still pointing to the 17th straight month of contraction.