China is still waiting for a 'big bang' economic fix as Beijing grapples with more bad news

China's manufacturing sector shrank in July, per multiple indices.

CFOTO/Future Publishing via Getty Images

• China's manufacturing sector contracted in July, multiple indexes showed.
• Beijing is also grappling with deflationary pressures and stagnant growth.
• Policymakers have hinted at an economic boost – but are yet to roll out a stimulus package.

China is still waiting for a so-called "big bang" fiscal stimulus package, with policymakers offering vague hints but yet to bring in concrete measures to fix the country's faltering economy.

Official government data released Monday signaled that the country's factories are producing less, with manufacturing activity falling for a fourth month in a row.

A private-sector gauge, the Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI), offered a similarly gloomy outlook the following day, missing analysts' forecasts and logging a first decline since April.

The weak factory data is the latest in a long line of economic concerns for Beijing, which is also grappling with below-par growth, the threat of deflation, and surging youth unemployment.

But the ruling Politburo is yet to start fully addressing those issues.

The country's top decision-making body acknowledged that the economy faced "new difficulties and challenges" last week – and pledged to roll out a stimulus package "with precision and force".

It resorted to vague hints once more after Monday's manufacturing slowdown, promising to "study and formulate policies" but stopping short of laying out what those policies actually might be.

Both Chinese-listed stocks and the renminbi jumped after the Politburo acknowledged the need for an economic boost at its July meeting, but have slipped in recent days with investors disappointed by Beijing's lack of action.

That chimes with a recent forecast by UBS. The Swiss bank predicted policymakers would hint at but fall short of bringing in the "big bang" stimulus package needed to revive growth.

If the Politburo doesn't opt for those "bazooka" measures to fix the economy it risks seeing China's much-heralded post-COVID reopening turn sour, according to analysts.

"Policy support is needed to prevent China's economy from slipping into recession, not least because external headwinds look set to persist for a while longer," Capital Economics' China expert Julian Evans-Pritchard said in a recent research note.

"Unless concrete support is rolled out soon, the recent downturn in demand risks becoming self-reinforcing," he added.

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