China's Weak Factory PMI Raises Pressure for Consumer Stimulus

• China's manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed on Saturday. Lower factory gate prices, which refer to lower quoted prices from manufacturers, excluding billed transport and delivery charges are pressuring policymakers to press on with plans to direct more stimulus to households.
• The National Bureau of Statistics purchasing managers' index slipped to 49.1 from 49.4 in July, its sixth straight decline and fourth month below the 50-mark separating growth from contraction. It missed the median forecast of 49.5 in a Reuters poll.
• After a dismal second quarter, China, the world's second-largest economy lost momentum further in July, prompting policymakers to signal their readiness to deviate from their playbook of pouring funds into infrastructure projects, instead targeting fresh stimulus at households.
• Sentiment remains gloomy among manufacturers as a years-long property crisis keeps domestic demand in the doldrums and Western curbs loom on Chinese exports like electric vehicles. Producers reported factory gate prices were their worst in 14 months, plunging to 42 from 46.3 in July, while the new orders and new export orders sub-indices remained firmly in negative territory and manufacturers maintained a hiring halt.
• "The fiscal policy stance remains quite restrictive, which may have contributed to the weak economic momentum," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "To achieve economic stabilisation, the fiscal policy stance needs to become much more supportive. With the U.S. economy slowing, exports may not be as reliable a source for growth as it was in the first half of the year," he added.
• Policy advisers are pondering whether Beijing may decide in October to bring forward part of next year's bond issuance quota if growth does not show signs of bottoming out in the summer. China made a similar move at the same time last year with stimulus that raised the deficit to 3.8% of GDP from 3.0% and frontloaded part of the 2024 local government debt quotas to invest in flood prevention and other infrastructure.

(Source: Reuters)