×

China's twin PMIs paint lackluster picture

147518478FL00031_Chinese_En
Getty Images

China's vast manufacturing sector remained lackluster in June, twin Purchasing Managers' Index (PMI) surveys showed on Wednesday, fueling calls for additional stimulus measures to boost the world's number two economy.

China's official manufacturing PMI stood at 50.2 in June, unchanged from the previous month and just above the 50-mark that separates growth from contraction, data showed on Wednesday. A Reuters poll had expected a figure of 50.3.

"In general, the softness in the manufacturing sector remains, requiring more policy recalibration," Liu Li-Gang and Zhou Hao, economists at ANZ, wrote in a note following the data.

The final HSBC PMI, published 45 minutes after the official data, came in at 49.4 in June - below a preliminary reading of 49.6 but a touch above the 49.2 recorded in May.

"The final reading of the HSBC China Manufacturing PMI pointed to a further decline in the health of the manufacturing sector in June. This was predominantly driven by the sharpest rate of job shedding across the sector since early-2009, while output also fell slightly on the month," said Annabel Fiddes, economist at Markit.

"On the upside, there were some signs of improvement in the shape of renewed increases in total new orders and new export business, suggesting that client demand both at home and abroad is reviving. However, it is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation," she added.

Read MoreChinese economy healthier than data suggest: Beige Book

The People's Bank of China (PBoC), the country's central bank, surprised markets with some aggressive monetary easing over the weekend - cutting both interest rates and the reserve requirement ratio (RRR) for select banks. The easing package came on the heels of a deep correction in the the country's stock markets. China last cut both interest rates and the RRR at the same time in December 2008, at the peak of the global financial crisis.

ANZ expects the PBoC will further lower interest rates by 25 basis points in the third quarter, and cut the RRR by additional 100 basis points in the second half of this year.

"Looking ahead, as real interest rates faced by Chinese corporates remain elevated, we see that further monetary easing is still highly needed," Liu and Zhou said.

The Australian dollar strengthened against the greenback following the HSBC final PMI, up 0.1 percent at $0.7719.

China's benchmark Shanghai Composite, meanwhile, trimmed losses from 0.8 to 0.4 percent, and the CSI 300 index pulled back into neutral territory.

The official PMI is skewed towards large companies and state-owned enterprises, while the HSBC PMI focuses more on small and medium-sized firms. June is the final month that HSBC will sponsor the closely-followed data series. Chinese media group Caixin will take over the sponsorship starting in July.

Slowdown is 'desirable'

The latest data comes alongside a new report by the World Bank, which highlights that China's slowdown is not unexpected, and is in fact "desirable."

"In the short term, it reflects policies to slow rapid credit growth, contain shadow banking, limit borrowing by local governments, and reduce excess capacity in industry. These policies address the vulnerabilities that built up after the 2008 global financial crisis," the Washington-based institution said its "China Economic Update" published on Wednesday.

"Over the medium term, lower growth is consistent with a gradual shift in China's growth model, from manufacturing to services, from investment to consumption, and from exports to domestic spending."

It expects China's gross domestic product (GDP) growth will decelerate to 7.1 percent in 2015 and to 6.9 percent by 2017. The economy grew 7.4 percent last year - the weakest expansion in more than two decades.