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China's July PMI slows on US trade dispute, bad weather

It's the lowest index reading since February but remains above the 50-point mark

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Employees working on a micro motor production line at a factory in Huaibei in Anhui province. Factory output growth in June slumped to a four-year low while year-to-date retail sales also cooled, an indication that both the industrial and consumer sectors are losing momentum.

Beijing

GROWTH in China's manufacturing sector slowed more than expected in July, as the worsening trade dispute with Washington and bad weather weighed on factory activity.

The official Purchasing Managers' Index (PMI) released on Tuesday fell to 51.2 in July, from 51.5 in June and below the 51.3 in a Reuters poll of economists. It was also the lowest index reading since February but remained above the 50-point mark that separates growth from contraction for a 24th straight month.

Firms were hurt by trade frictions, rain and high temperatures in July, which is also a cyclically slow season for some sectors, said statistics bureau official Zhao Qinghe in a statement released with the data.

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The gauge of factory activity is the first major reading of the world's second largest economy since the second quarter of this year, when China logged a modest slowdown in growth, weighed by government efforts to tackle debt risks and escalating US trade tensions.

The PMI's July new export orders index remained in contraction in July, but did not change from the previous month's reading of 49.8, a sign that trade conditions have not worsened significantly.

Capital Economics senior China economist Julian Evans-Pritchard said a weaker yuan was likely helping exporters cope with the hit to activity from new tariffs, although a weak reading on imports indicated softening domestic demand. "Today's data are consistent with our view that China's economy is on track to slow further this quarter and next, triggering additional policy easing," Mr Evans-Pritchard wrote in a note.

The sub-index on imports dipped into contraction in July and was the lowest since February.

Beijing and Washington have been engaged in a tit-for-tat exchange of punitive measures and threats of measures against each other's goods.

Earlier in July, the United States imposed tariffs on US$34 billion of Chinese imports. China promptly responded by levying taxes on the same value of US products, leading US President Donald Trump to threaten tariffs on US$500 billion of Chinese goods.

China's June exports growth cooled slightly from the previous month but remained solid, as exporters rushed to move shipments before tariffs went into effect on July 6.

A production sub-index fell to 53.0 in July from 53.6 in June, while a new orders sub-index declined to 52.3 from 53.2.

Chinese stock markets were trading slightly lower on Tuesday morning after the data was released, with the Shanghai Composite Index down about 0.25 per cent.

Another survey released by the National Bureau of Statistics on Tuesday showed growth in China's service sector moderating in July, with the official non-manufacturing Purchasing Managers' Index (PMI) dipping to 54.0 from 55.0 the previous month.

Chinese policymakers are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports. The services sector now accounts for more than half of the economy, with rising wages giving Chinese consumers more spending clout.

However, factory output growth in June slumped to a four-year low while year-to-date retail sales also cooled, an indication that both the industrial and consumer sectors are losing momentum.

The composite PMI, which covers both manufacturing and services activity, slipped to 53.6 in July, from June's 54.4. REUTERS