China manufacturing expansion slows in July

China registered steady growth during the first half of the year with stronger-than-expected GDP and exports growth, but the positive momentum will be hard to maintain as the country looks to adopt stricter financial regulations aimed at controlling the country’s debt-fuelled investments.

The latest purchasing managers’ index (PMI), a gauge of factory conditions, came in at 51.4 in July, the National Bureau of Statistics (NBS) said, down from the 51.7 reading in June.

Anything above 50 is considered growth while a figure below points to contraction. Analysts surveyed by Bloomberg News had expected a reading of 51.5.

Expansion in supply and demand has slowed down due to extreme weather across the country, where intense heat and flooding in some areas have hindered manufacturing activity, NBS analyst Zhao Qinghe said in a statement.

Chart showing China’s purchasing managers’ index since 2014, according to official data

“July’s PMI signals a slight softening of the manufacturing sector,” Raymond Yeung of Australia & New Zealand Banking Group Ltd. told Bloomberg.

“External demand will likely drop in the summer, and third quarter GDP growth isn’t expected to hit 6.9 percent.”

“China’s growth momentum may have waned at the start of Q3,” Julian Evans-Pritchard of Capital Economics said in a note.

“We anticipate further weakness ahead as the crackdown on financial risks weighs on credit expansion and economic growth.”