China's factory activity seen extending declines in Aug - Reuters poll

By Joe Cash

BEIJING (Reuters) - China's factory activity likely shrank for a fourth month in August, a Reuters poll showed on Friday, reinforcing the need for officials to direct more stimulus towards households and less to building projects.

The official purchasing managers' index (PMI) was forecast at 49.5, up from July's reading of 49.4, according to the median forecast of 24 economists in the poll. The 50-point index mark separates growth from contraction in activity.

The $19 trillion economy started the second half of the year on a shaky footing, with dismal exports, prices and bank lending indicators for July showing demand losing steam.

The recovery most analysts had expected following China's lifting of its strict COVID curbs in 2022 has so far eluded the world's second-largest economy.

Beijing last month signalled it was ready to deviate from its usual playbook of pouring funds into infrastructure projects.

There have been some green shoots with retail sales topping forecasts last month.

But more specific details on how China plans to reinvigorate the 1.4 billion-strong consumer market remain to be seen, with officials so far only pledging to "focus on boosting consumption to expand domestic demand".

Weighing heavy on consumer spending has been a bruising slump in the property sector over the past three years.

With 70% of household wealth held in real estate, which at its peak accounted for a quarter of the economy, consumers have kept their wallets shut tight.

There is little sign that policies aimed at restoring confidence were having the desired effect last month, as China's new home prices fell at the fastest pace in nine years in July.

Analysts have broadly welcomed support targeting consumer spending but warn other policy levers will need to be pulled if the government is to hit its annual growth target of around 5%.

The official PMI will be released on Saturday.

The private sector Caixin factory survey will be released on Sept. 2. Analysts expect its reading to edge up to 50.0.

($1 = $1.0000)

(Reporting by Joe Cash; Polling by Rahul Trivedi and Devayani Sathyan in Bangalore and Jing Wang in Shanghai; Editing by Sam Holmes)