-Jacqueline Rong, an economist with BNP Paribas
China's manufacturing activity plunged to the lowest level in 15 month in July, adding to the latest signs of deterioration in the world's second biggest economy. The preliminary reading of the Caixin China Manufacturing Purchasing Managers' Index dropped to 48.2 this month, compared with the final June's gauge of 49.4. A reading above the key 50-mark threshold shows that the sector expands, while below points to contraction. Sub-indexes for output, new orders, new export orders and employment all showed decreases during the reported month. The factory output sub-index dropped at a faster rate, falling to its lowest in 16 months. Yet, the preliminary version released Friday is based on 85-90% of responses from factories. The final version is due August 3.
The weaker-than-expected reading suggests that the Chinese economy has yet to regain traction despite several rounds of interest rate cuts, higher spending on infrastructure and signs that the real-estate market is emerging from a slump. It is also likely to further cast doubt on the 7% growth Beijing reported for the second quarter as other readings, from industrial output to investment in factories and buildings, showed persisting weakness. Since November the People's Bank of China has slashed interest rates four times, and has lowered the Reserve Requirement Ratio for banks twice, and a third time for banks that lend to certain sectors where the government is trying to boost growth in, such as agriculture.
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