Small Business In China Struggles. Stock Market Down


’s official factory gauge unexpectedly fell below the dividing line between improvement and deterioration, signaling a debt-fueled growth rebound may be losing steam.
Key Points
Manufacturing purchasing managers index fell to 49.9 last month, below June’s 50, which was also the median estimate in a Bloomberg survey of economists
Non-manufacturing PMI was at 53.9 compared with 53.7 in June
As in June, drag on manufacturing index comes from medium and small enterprises
Numbers below 50 indicate conditions are getting worse
By contrast, manufacturing PMI from Media and Markit Economics jumped to 50.6 in July, from 48.6 in June.

Big Picture
The sub-50 reading for the manufacturing PMI was the first since February, casting doubt on the durability of an economic stabilization that’s been boosted by a property market recovery and state-led investment. A drop in a reading of new export orders, combined with a slump in South Korea’s exports last month, suggest global demand remains tepid.
Economist Takeaways
“The economy is at the tipping point right now and there is a downward trend,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “The government seems to be concerned about bubbles now, so policies are trending tighter.”

“The downward pressures on growth make the achievement of the overly ambitious growth targets reliant on continued stimulus,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, adding that the economy is challenged by loss of momentum in real estate construction, weak business investment and subdued exports. “With the limits to credit-based stimulus becoming more obvious, the government may have to resort to a greater reliance on fiscal policy.”
The Details
Measures of output, new orders and new export orders among components of factory gauge that declined
Large enterprises reported improving conditions, with manufacturing PMI for them rising to 51.2, while medium enterprises slipped to 48.9 and small to 46.9
On the services measure, new orders and selling prices slipped, while business activity expectations climbed
On Caixin PMI, output rose to 52.1, highest reading since July 2014

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