BEIJING Growth in China's vast factory sector may have stalled in June as domestic and external demand weakened, a Reuters poll showed, boding ill for broad economic prospects in the second half.
The median forecast of 12 economists polled by Reuters this week showed China's official Purchasing Managers' Index (PMI) likely touched its watershed line of 50 in June, as compared with 50.8 in May.
A reading above 50 indicates expanding activity while one below that level points to a contraction. The last time the official PMI showed a contraction was in September last year. The report will be released on Monday.
If correct, the PMI reading, which starts the regular monthly data deluge for June and comes ahead of the second-quarter gross domestic product report, will confirm a further slowdown in China during the April-June period after surprisingly weak growth of 7.7 percent in the first three months.
"We expect industrial activity to slow in June as destocking continued amid weak demand and employment conditions to worsen as growth slows further in Q2," said Jian Chang, an economist with Barclays in Hong Kong.
She expected China's economy to have grown by 7.5 percent in the second quarter, which is the annual growth target for 2013 set by the Chinese government.
A preliminary PMI survey by HSBC/Markit released last week showed factory activity slipped to a nine-month low in June as new orders faltered. The full version of the survey will be published on Monday just after the official PMI.
The recent interbank market turmoil further dimmed the outlook in the second half, as investors see that China's new leadership wants banks to cut off shadow lending in its efforts to defuse possible systemic financial risks.
"The heightened regulation of social financing may hurt investment in the infrastructure and property sectors," said Gao Yuan with Haitong Securities in Shanghai.
"We tend to believe that economic growth will slip further to 7.4 percent in Q3 and 7.2 percent in Q4."
Money market rates eased and Chinese stocks searched for a footing on Thursday after the central bank and cabinet, led by Premier Li Keqiang, issued separate statements earlier this week to assure investors they would pump liquidity when needed and try to stabilize expectations.
FORECASTS Mizuho Securities Asia 49.8
ING 49.9 Shenyin Wanguo Securities 49.9 Societe Generale 49.9 Zheshang Securities 50.0 Peking First Advisory 50.0 Haitong Securities 50.1 Barclays 50.2 China Merchant Securities 50.3 Rising Securities 50.5 Guotai Junan Securities 50.5
----------------------------------------- Median 50.0 High 50.5 Low 49.8 Prior 50.8 No. of forecasts 12
(Reporting by Langi Chiang and Jonathan Standing; Editing by Jacqueline Wong)