China's purchasing managers' index dipped 0.1 percentage point to 50.1 in July, the slowest growth in eight months and barely above the 50 level signifying expansion

Cindy Allen

SHANGHAI , August 1, 2012 (Associated Press) – China's manufacturing barely grew in July and analysts said weakening export demand pointed to the need for more efforts to revive growth.

The state-affiliated China Federation of Logistics and Purchasing said Wednesday that its purchasing managers' index, or PMI, fell 0.1 percentage point to 50.1 in July, the slowest growth in eight months and just above the 50 level signifying expansion. The index was at 50.2 in June, 50.4 in May and 53.3 in April.

"The index dropped with off-season declines in production and construction, allowing little evidence the economy is bottoming out," the federation said in its report. "Current demand is weak and downward pressure has yet to eliminate oversupply."

A second survey, by HSBC, showed overall manufacturing activity deteriorating at a slower rate. Factory production rose for the first time in five months but manufacturing employment declined at the sharpest rate in over three years, it said.

HSBC's PMI rose to 49.3 in July, up from 48.2 in June. Although still below 50, it was the sharpest month-on-month increase in nearly two years, HSBC said. The PMI indexes measure overall manufacturing activity by surveying numerous indicators including orders, employment and actual production.

"This is far from inspiring, as China's growth slowdown has not been reversed meaningfully and downside pressures persist with external markets continuing to deteriorate. We still expect Beijing to step up policy easing in the coming months to support growth and employment," said HSBC economist Qu Hongbin.

China's economic growth fell to a three-year low of 7.6 percent in the second quarter, relatively robust when compared with the U.S. and Europe but low for China after years of double-digit growth.

The slump comes at a sensitive time for the ruling Communist Party, which is preparing to hand power to a younger generation of leaders this year.

China has cut interest rates and slashed gasoline and diesel retail prices while moving cautiously with a "mini-stimulus" plan, mindful of the painful hangover of inflation, wasteful construction and debt from its 4 trillion yuan ($586 billion) avalanche of spending in response to the 2008 global crisis.

The government has promised to pump more money into the economy with spending on low-cost housing, airports and other projects.

Still, industries such as oil and food processing, electrical machinery, transport, aerospace and communications equipment showed expansion, especially for large manufacturers, while production by smaller companies continued to contract.

"Helped by effective policies, future market demand is expected to be steady," federation economist Zhang Liqun wrote in the report. "Economic growth will stabilize or accelerate."

Weakness in the global economy is taking a heavy toll, the government survey showed, with the index for new export orders falling nearly 1 percentage point to 46.6.

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