Economic growth slows in August

A worker puts finishing touches to an iPal social robot, designed by AvatarMind, at an assembly plant in Suzhou, Jiangsu province. [Photo/Agencies]

Growth in China's general economic activities, measured by a private purchasing managers' index, slowed in August, signaling the world's second-largest economy may face stronger headwinds.

The Caixin/Markit composite purchasing managers' index (PMI), which covers both the manufacturing and service sectors, weakened in August, standing at 52, the lowest in five months, compared with 52.3 in the previous month.

The Caixin/Markit services PMI fell to 51.5, the lowest in 10 months, from July's 52.8.

The 50-mark separates growth from contraction. Both indexes were released by Caixin Media on Wednesday.

Caixin's weaker PMI readings came after a separate survey on Monday showed China's manufacturing activity grew at the slowest pace in more than a year in August.

The composite index indicates "that economic growth remained on a downward trajectory," said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group. "Inflationary pressures were pronounced as increases in both input prices and output prices accelerated."

China's economic data in July, such as retail sales and fixed-asset investment, weakened compared with June, while its consumer price index rose to 2.1 percent in July, up from 1.9 percent in June, according to data by the National Bureau of Statistics (NBS). Recent rises in food prices in many parts of the country have triggered concerns that consumer inflation may strengthen further in August. The NBS is scheduled to release CPI data next Monday.

To cope with the downward pressure, policymakers have decided to fine-tune its monetary policy stance and increase investment in infrastructure with a view to bolstering growth. But analysts said it will take some time for those policies to take effect.

"August's (Caixin) PMI readings indicated that the effects of expansionary credit policy and active fiscal policy are yet to kick in. Signs of stagnation emerged as upward pressure on prices remained even though demand weakened at a faster rate," Zhong said.

Lian Ping, chief economist of the Bank of Communications, said that despite the weak data in July, China's economic fundamentals remain healthy and it is unnecessary to worry too much about the prospects of the economy.

China's exports remained resilient and increased by 12.5 percent year-on-year in dollar terms, Lian told Chinese media. In August, exports are expected to continue to grow at a fast pace, he said.

Although China's retail sales growth dropped in July, he said its scale of consumption has become close to that of the United States, and China may replace the US to become the world's largest consumer market in terms of retail sales, thus ushering in capital flow into the country, he said.

The ongoing trade disputes between China and the US will not shake the fundamentals of the Chinese economy and it is not advisable to become pessimistic about the prospects of China's economy, he added.

Analysts said that the current policy of increasing infrastructure investment may keep the country's economic growth from continuing to fall, but it will not be adequate to raise growth. They said if the country's economic growth continues to weaken, China may further cut taxes and lower interest rates to boost manufacturing and consumption.