China's Official August PMI Contracts for 2nd Month

China's manufacturing sector contracted for the second straight month in August, an official survey showed, but a dramatic easing in input price pressures offered some relief.

China, Chinese Flag
China, Chinese Flag

The official purchasing managers' index stood at 48.4 in August, unchanged from July, the China Federation of Logistics and Purchasing (CFLP) said on Monday.

Those are the only two months that the survey has fallen below the boom-bust line of 50 since its public launch in 2005. A reading over 50 indicates an expansion of activity, while one below 50 suggests contraction.

Zhang Liqun, a researcher with the Development Research Centre, a think-tank that reports to China's cabinet, said that continued weak reading showed the economy was continuing to slow.

"Since the government took many measures in July to support businesses, the business environment for many firms has not actually worsened," Zhang said. "But the changes in business operations are worth noting, and new measures are needed to relieve businesses' difficulties so that stable economic growth can be maintained."

Aiming to limit the impact of tightening measures on firms, authorities have recently raised credit quotas, increased tax rebates on exports of textiles and scrapped some administrative
fees for small businesses.

The CFLP noted the precipitous drop in the input price sub-index in August. It fell 13.5 points from July to 57.8, the lowest reading since April 2007.

An easing of pipeline price pressures will be welcomed by manufacturers. The producer price index rose 10.0 percent from a year earlier in July, the highest reading since the mid-1990s,
pinching margins.