Factory activity lowest in 4 months

Slowdown 'normal' as country tries to readjust its economic structure

Factory activity declined in June, with the government appearing prepared for a slower-than-ever growth rate during structural reforms to the economy.

The Purchasing Managers' Index, a gauge that mainly indicates operating conditions in the manufacturing sector, slipped to a four-month low of 50.1 from 50.8 in May, the National Bureau of Statistics reported on Monday.

A separate PMI survey, conducted by HSBC Holdings, showed an even lower index for the sector in June — a three-quarter low of 48.2 — down from 49.2 in May and 50.4 in April.

For both indexes, a reading higher than 50 means expansion, while below 50 indicates contraction.

A lack of increased new orders was seen by the two surveys as the main reason restraining manufacturing activities.

Qu Hongbin, HSBC's chief economist in China, said the sluggish factory production may signal a maintained economic slowdown in the second quarter from 7.7 percent growth in the first three months.

"The liquidity squeeze in the interbank market during the past two weeks is likely to slow expansion of off-balance-sheet lending, further exacerbating funding conditions for small and medium-sized enterprises, adding pressure on employment," Qu said.

But a hard landing for the economy is impossible, he stressed.

In China, the manufacturing sector contributes about 40 percent of GDP, with 60 percent coming from SMEs. About 80 percent of jobs are provided by small businesses.

David Laurier, CEO of Belgium-based environmental company AppliTec, said the slowdown in economic activity has resulted from internal and external factors. The lower PMI in China is "normal" as the country is going in the right direction of restructuring its economy from high-speed growth to medium-paced growth, he said.

"The new leadership has adopted different approaches to credit management and restructuring the economy and is focusing on sustainability of this big country's development," Laurier said. "As the current leadership team has pledged to focus on development quality since it took office, we, as foreign businessmen, should also adjust ourselves to a slower pace."