China HSBC PMI dips to 11-month low in July as demand sags

Signals persistent pressure on economy has extended into the third quarter

China's factory activity shrank for a third straight month in July to its lowest level in nearly a year as new orders fell, a private survey showed on Thursday, signalling the persistent pressure on the economy has extended into the third quarter.

The HSBC Purchasing Managers' Index (PMI), compiled by Markit Economics Research, fell to 47.7 in July from June's 48.2. It was the weakest reading since August 2012, and matched a preliminary figure published last week.

A reading below 50 indicates a contraction of activity while one above shows expansion.

"With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment," said Hongbin Qu, China chief economist at HSBC.

While keeping the door shut for big stimulus, the government has unveiled a series of polices to boost spending in social housing, urban infrastructure, high-speed rail and energy-saving industries, while offering tax breaks for small firms.

"These targeted measures should boost confidence and reduce downside risks to growth," Qu added.

Reflecting weak demand at home and abroad, new orders declined to 46.6 in July, a third straight contraction that took the sub-index to its lowest since August 2012.

New export orders shrank for a fourth month in July at a rate that was the fastest since last October, as exporters struggle to cope with weakening demand, especially from Europe and the United States.

A sub-index measuring employment contracted for a fourth month to be at its weakest since March 2009, according to the survey.

Investors trying to gauge what is happening in the world's second-largest economy also look at surveys on China's fledgling services sector, which has been holding up relatively well compared to the manufacturing sector.

China's official PMI suggest services are growing faster than manufacturing. The services measure has hovered between 53.9 and 56.7 in the past 12 months, while manufacturing has fluctuated between 49.2 and 50.9.

The official services PMI for July will be released on August 3, followed by the HSBC services PMI on August 5.

China's annual economic growth slowed to 7.5% in the second quarter from 7.7% in the first three months of 2013, which was down from 7.9% in the previous quarter.

The politburo, China's top decision-making body, has pledged stable economic growth in the second half of this year, while pressing ahead with reforms and restructuring.

Analysts in a Reuters poll forecast annual GDP growth slowing to 7.4% in the third quarter before stablising in the final quarter of 2013. Full-year growth is forecast to be 7.5% - in line with the official target.

Chinese leaders, while indicating that annual growth should not be allowed to slip below 7%, have insisted that the official target for 2013 remains achievable.