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Published on : Aug 03, 2015

It seems that the season of bad news is not over yet for the Chinese economy. Earlier on Monday after the final measure of factory activity for July, the country received news about its already weak manufacturing sector declining to a two-year low. 

The Caixin China that is an index for purchasing managers in manufacturing, a measure of manufacturing activity nationwide, fell below 47.8 in July from 49.4 in June. The information was revealed by the Markit, a leading research firm in China and Caixin Media Co. The reading on the index dropped below 50 than that of the previous month, which clearly indicates contraction in the economy, while reading above 50 signals expansion. The readings recorded in Caixin were much worse than the official report on China’s manufacturing activities that was released on Saturday. The report showed manufacturing activities in China at 50.0 for July, registering a slight decline than June’s reading at 50.2. 

According to industry analysts, the steep decline in China’s stock market during late June until July has adversely impacted the sentiments of society that is already witnessing a weak property market and sluggish domestic and overseas demand.  These firms also suggested that the increasing signals of manufacturing weakness is anticipated to prompt the Chinese government to redouble its effort to propel the economy with increased funding and relaxing the prevalent monetary measures. 

Wendy Chan, a prominent economist at Nomura said that the volatility in stock market prices may have dampened the confidence of those engaged in or with businesses in China. This, according to Chan, can be a key factor contributing to the weakening demand landscape in China. It was in June, since the steep selloff of the stock market began in China, and it continued through July despite the launch of aggressive recovery program by the Chinese government.