Boosting consumption will be a leading policy priority in second half

China's manufacturing sector is expected to remain resilient and sustain its expansion in the second half despite a slight moderation in momentum in July, as policymakers step up efforts to bolster domestic demand while ensuring a smooth transition from old growth drivers to new ones, experts said.

Their comments came as the RatingDog China General Manufacturing Purchasing Managers' Index — which gauges operating conditions in the sector — edged down to 50.9 in July from 51.7 in June, marking a four-month low but remaining above the 50-point mark, that separates expansion from contraction, for an eighth consecutive month, a private survey showed on Monday.

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Highlighting the necessity of consolidating the manufacturing sector's expansion momentum, experts said boosting domestic demand will be a key policy priority in the second half, with policy support expected to place greater emphasis on coordinating demand expansion with supply optimization.

Despite the moderation, the survey showed that export activity returned to expansionary territory in July after two consecutive months of contraction, while overall new orders grew for a 14th consecutive month — the longest stretch of gains since 2018 — though the pace of growth slowed from June.

Meanwhile, cost pressures eased further, with input price inflation slowing to a six-month low — signaling that elevated inflationary pressure was being effectively contained — while output prices remained broadly unchanged, the survey said.

"China's manufacturing sector continued to expand in July, though at a slower pace, underpinned by sustained growth in new orders and a further easing of cost pressures," said Yao Yu, founder of RatingDog, adding that renewed growth in new export orders was an encouraging sign.

Looking ahead, manufacturers remain upbeat about output over the next 12 months, with optimism picking up slightly from June on expectations of stronger market demand, new product development and capacity expansion, Yao added.

That optimism, however, came amid lingering pressure on market demand. The official manufacturing PMI fell to 49.2 in July from 50.3 in June, slipping into contraction territory for the first time in five months, while the new orders subindex dropped to 48.5, the National Bureau of Statistics said on Friday.

"The decline mainly reflects still-soft domestic demand, compounded by disruptions from extreme weather," said Xiong Yuan, chief economist at Guosheng Securities, adding that the official reading pointed to continued pressure on the broader economy amid the ongoing transition from old growth drivers to new ones.

At a tone-setting meeting in late July, the Political Bureau of the Communist Party of China Central Committee made arrangements for economic work in the second half, calling for efforts to accelerate the transition from old growth drivers to new ones, step up countercyclical adjustments, expand domestic demand and optimize supply.

"This signals a stronger policy push and a growing sense of urgency to expand domestic demand," said Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities.

Luo expects faster fiscal spending and more efficient use of bond funds — alongside progress on the six major infrastructure networks — to provide a stronger boost to investment and consumption.

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Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International, also saw room for additional fiscal and monetary support, and expects a package of pragmatic and effective incremental policies to be introduced around the end of the third quarter.

"By our estimates, there is room to issue an additional 700 billion yuan ($103.7 billion) in local government bonds by year-end, while the central government has greater room for additional borrowing," Wang said.

On the monetary front, Wang projects that the People's Bank of China, the country's central bank, could cut policy rates by 10 basis points and lower the reserve requirement ratio by 0.5 percentage point.

Contact the writers at zhangchenxu@chinadaily.com.cn