BEIJING--China promised more policies to bolster its embattled trade sector as a preliminary gauge of manufacturing activity showed new sluggishness in the economy.
The top government body, the State Council, issued a list of measures Friday to boost exports and imports, including restating its long-held policy of widening the currency's trading band, as part of a broader effort to stabilize the economy and arrest a persistent slowdown.
In the latest sign of weakness, the Caixin China Manufacturing Purchasing Managers' Index--a private survey of factory activity--came in at a 15-month low in July. Its preliminary reading sank to 48.2, compared with June's final reading of 49.4, said Caixin Media Co. and research firm Markit. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.
"It was much lower than expected," said Jacqueline Rong, an economist with BNP Paribas. "It means that the industrial sector has not yet found its footing."
Subindexes for output, new orders, new export orders and employment all declined in July.
The low reading suggests that the economy has yet to regain momentum despite several rounds of interest rate cuts, higher spending on infrastructure and signs that the real-estate market is slowly emerging from a prolonged slump.
It is also likely to cast further doubt on the 7% year-over-year growth the government reported for the second quarter after other indicators, from industrial production to investment in factories and buildings, pointed to weakness.
Following the anemic read on China's factory activity, the Australian dollar slipped as much as 1.1% while copper prices fell to a six-year low on concerns about China's waning appetite for raw materials.
China's trade performance has also been lackluster, with exporters, who once drove growth, facing weak demand in key overseas markets. This hasn't been helped by the relative strength of the Chinese currency, the yuan, against the U.S. dollar.
The State Council said it would continue to maintain a "basically stable" yuan at a reasonable level while allowing more room for daily movement of the currency, which is permitted to fluctuate within a narrow band against the dollar. It didn't mention any time-frame for the currency reform.
The State Council also promised to remove trade-related fees, cut red tape and provide more favorable financing services and export credit insurance to small exporters.
With the yuan holding steady against a strengthening dollar this year, exports were up only 0.9% from a year earlier in the first half of 2015, falling short of the double-digit gains of past years.
While exports have been hurt by maintaining a stable yuan alongside a strengthening dollar, economists and officials have said the government sees the steady management of the currency as critical to other goals. Chief among those, they have said, is Beijing's efforts to lobby the International Monetary Fund to include the yuan in its basket of global reserve currencies at a scheduled review late this year.
China's central bank sets a daily reference rate for the yuan and allows it to trade 2% above and below that level against the dollar. It widened the band to the current level from 1% in March last year.
Many economists have been arguing that China needs to make its currency regime more flexible and let the yuan weaken.
"Policy easing clearly is not working," said Kevin Lai, an economist at Daiwa Capital. "They really have to allow the currency to adjust."
Grace Zhu contributed to this article.
(END) Dow Jones Newswires
July 24, 2015 02:27 ET (06:27 GMT)
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