Chinese factories face 'cruel summer'

China's sluggish manufacturing sector is poised for a "cruel summer" with two surveys of sentiment this week pointing to a new level of gloom among factory owners struggling with poor demand, signaling risks for economic growth in the second half.

The Caixin/S&P Global manufacturing purchasing managers' index dropped to 49.8 last month - below the 50 mark separating growth from contraction - from 51.8 in June. That was the lowest reading since October and missed analysts' forecasts of 51.5.

"The most prominent issues are still insufficient effective domestic demand and weak market optimism," said Caixin Insight Group economist Wang Zhe, calling for policy efforts to stabilise growth.

Employment was stable as the rate of job losses was unchanged, staying in contractionary territory for the 11th month.

The National Development and Reform Commission said China has enough space to take countercyclical measures and the confidence to complete the full-year goal.

That lack of confidence was also reflected in secondary-market home prices in 100 cities falling for the fourth consecutive month in July, according to the China Index Academy

The central People's Bank of China is planning to move the date when it injects one-year liquidity to domestic lenders to the 25th of each month, according to insiders, as part of a shift to relying primarily on a short-term interest rate to steer markets. The change will take effect as early as this month, they said. The central bank at present conducts its medium-term lending facility operation on the 15th of every month.

In recent weeks it has begun an overhaul of its policy framework, which could allow it to operate more like global peers and influence market borrowing costs more effectively.

It's been downplaying the role of the medium-term facility as a key rate while transitioning to using the seven-day reverse repurchase notes as the main policy lever to send out a clearer signal.

Agencies