Beijing, August 1

Growth at China’s big manufacturing companies unexpectedly stalled in July as demand at home and abroad weakened, an official survey showed today, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump.

The official Purchasing Managers’ Index (PMI) stood at 50 in July, compared to the previous month’s 50.2. The 50-point mark separates growth from contraction on a monthly basis.

Analysts polled by Reuters had predicted another tepid reading of 50.2, pointing to expansion, albeit a sluggish one.

However, both export and domestic orders shrank for the large firms covered by the survey, and in response they continued to cut jobs.

It did not mention any impact from a savage 30 per cent drop in stock markets since mid-June, though analysts said wild price swings could hit consumer and business confidence and investment decisions, adding pressure on the already cooling economy.

“It warrants more concrete policy measures to stabilise the real economy. Perhaps the funds used to prop up the share market could be used to support the real economy,” ANZ Economists Li-Gang Liu and Louis Lam said.

A similar activity survey today suggested strength in the services sector continued to offset some of the persistent weakness at factories, but there were worrying signs on that front, too.

The official non-manufacturing Purchasing Managers’ Index (PMI) edged up to 53.9 in July, compared with the previous month’s reading of 53.8 and pointing to solid expansion.