Growth at China’s big manufacturers unexpectedly stalled in July as demand at home and abroad weakened, an official survey showed on Saturday, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump.

The official purchasing managers’ index (PMI) stood at 50.0 in July, compared with the previous month’s 50.2. The 50-point mark separates growth from contraction on a monthly basis.

Analysts had predicted another tepid reading of 50.2, pointing to expansion, albeit a sluggish one.

However, both export and domestic orders shrank for the large firms covered by the survey, and in response they continued to cut jobs.

It did not mention any impact from a savage 30% drop in stock markets since mid-June, though analysts said wild price swings could hit consumer and business confidence and investment decisions, adding pressure on the already cooling economy.

“It warrants more concrete policy measures to stabilise the real economy. Perhaps the funds used to prop up the share market could be used to support the real economy,” ANZ economists Li-Gang Liu and Louis Lam said in a research note.

ANZ maintained its forecast that the central bank will cut interest rates by another 25 basis points (bps) this quarter and reduce banks’ reserve requirements by 50 bps by year-end.

The government has rolled out a flurry of steps since last year to try to put a floor beneath sputtering economic growth, including accelerating infrastructure spending and repeated reductions in interest rates and banks’ reserve ratio. But growth is still expected to moderate this year to around 7%, the slowest in a quarter of a century.

The statistics bureau said the weaker reading was partly due to the weather, as hot temperatures and heavy rain led some firms to reduce production and carry out maintenance.

“The recent fall in prices of oil and other commodity products also affected related industries,” it added.

A preliminary, private Caixin/Markit survey last month showed activity at smaller factories contracted by the most in 15 months.

China’s slowdown has already become a sharp reality check for many foreign companies doing business there and for its export-reliant neighbours such as Australia.

Volkswagen lowered its global sales forecast on Wednesday and said it was braced for stagnant volumes in China, after years of double-digit growth in its biggest market.

South Korea on Saturday reported exports to China, its biggest customer, fell 6.4 percent in July from a year earlier, the sharpest decline in five months.

A similar activity survey on Saturday suggested strength in the services sector continued to offset some of the persistent weakness at factories, but there were worrying signs on that front, too.

The official non-manufacturing PMI edged up to 53.9 in July, compared with the previous month’s reading of 53.8 and pointing to solid expansion.

But services companies also reported softer orders, with the new orders sub-index falling to 50.1 in July from 51.3 in June, and firms cut jobs at a slightly faster pace.



