Asia Economy

Is China manufacturing data due for a dip?

Growth in China to remain weak: Motley Fool
VIDEO3:5503:55
Growth in China to remain weak: Motley Fool

Chinese manufacturing data could disappoint this week amid weakness in the economy and that may just be the beginning, analysts told CNBC.

A rebound in export orders in recent months boosted China's manufacturing sector amid a weaker yuan and signs of a recovery in the U.S., one of China's major trading partners.

But some analysts told CNBC they are worried that the underlying risks to China's economy would spill over to the country's manufacturing sector, derailing the recent positive trend.

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"I'm going to take the under," said Joe Magyer, senior analyst at The Motley Fool, referring to expectations for official purchasing managers' index (PMI) data out on Tuesday, which he expects to start to reflect weakness in China's economy. The final reading for HSBC's PMI data is also due Tuesday.

Last week a flash reading for the HSBC manufacturing data hit a seven-month high of 50.8, up from 49.4 in May, marking the first time the figure crossed the 50 level – the dividing line between expansion and contraction – this year. Meanwhile, official PMI rose to a five-month high of 50.8 in May.

But Magyer warned the positive run could end soon.

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"I know a lot of people think the mini stimulus that's been going on is going to help but China has been fueled by such an expansion in credit over the past few years any incremental stimulus isn't going to have much of an effect," he said, referring to recent targeted reserve requirement ratio (RRR) cuts for banks in weaker sectors of the economy, such as agriculture.

Magyer flagged China's real estate market as another major risk, amid signs of cooling.

Revenue from property sales for the January-to-May period dropped 8.5 percent on year, while data from Chinese real estate website Soufun show May land sales fell 45 percent on year and transaction value fell 38 percent.

"When you look at some of the key drivers of China right now one of them is real estate," said Magyer.

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"Pricing for real estate in China has finally stalled… and that's important because 20 percent of the economy is related to real estate and when you look at all the iron ore that's piling up in ports I think you have a pretty good reason for that. [The reason] could be [that] one of the major components of the economy is cooling off," he added.

Other analysts also told CNBC risks to the economy could take their toll on PMI data later this year.

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"I think it could sustain its current momentum on Tuesday, but don't think it will go much higher [in the coming months] because of all of the things that are slowing the economy down," said Alaistair Chan, economist at Moody's Analytics.

"There's still quite a lot of overcapacity in the economy, so I wouldn't be surprised if there was another deceleration in the second half of the year as I don't think this export bounce will last very long, so manufacturing will remain under pressure," he added.

Jian Chang, chief China economist at Barclays told CNBC he expected official PMI to rise to 51.2 in June boosted in part by improving new orders.

"While the property sector activities have been a drag, infrastructure investment likely have picked up further as the central government has accelerated fiscal spending, and targeted easing measures in June have helped to inject liquidity to the economy. But we continue to see more easing needed to sustain the growth momentum in the second half of they year," he added.