China Factory Activity Shrinks Most in Two Years in July

China’s factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashing hopes that the world’s second-largest economy may be steadying, a private survey showed on Monday.  The report followed a downbeat official survey on Saturday which showed growth at manufacturing firms unexpectedly stalled, reinforcing views that the cooling economy needs more stimulus even as it faces fresh risks from a stock market slump.

Fears of a full-blown market crash have added a new sense of urgency for policymakers in Beijing, with many analysts expecting more support measures to be rolled out within weeks.  The final, private Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to 47.8 in July, the lowest since July 2013, from 49.4 in June.

That was worse than a preliminary “flash” reading of 48.2 and marked the fifth straight month of contraction, as indicated by a reading below 50.  New orders reversed into contraction last month after growing in June, while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.