Key facts
- China's official manufacturing PMI contracted to 49.2 in July, down from 50.3 in June.
- The Caixin China General Manufacturing PMI also fell to 49.5 in July, indicating a contraction.
- Weak domestic demand, elevated production costs, and global trade uncertainty contributed to the decline.
- Output and new orders decreased, while input costs rose.
- Despite the contraction, business sentiment improved.
China's factory activity unexpectedly contracted in July, with the official manufacturing purchasing managers' index (PMI) falling to 49.2 from 50.3 in June, according to data from the National Bureau of Statistics. This marks a contraction for the fourth consecutive month and is the lowest reading since April, falling below the 50-point threshold that separates growth from contraction.
The Caixin China General Manufacturing PMI also declined, falling to 49.5 in July from 50.4 in June, indicating a second contraction in three months. This downturn is attributed to a sharper decline in new export orders amid global trade uncertainty, and a slowdown in new orders growth impacting output. Input costs rose for the first time in five months due to higher raw material prices, while selling prices fell amid intensified market competition.
Production and new orders sub-indexes both fell, with production at 50.5 and new orders at 49.4. However, market sentiment improved to a four-month high of 52.6 percent, driven by hopes of better economic conditions and expectations of boosted sales through promotional efforts, though overall optimism remained below the series average.
The non-manufacturing PMI, which includes construction and services, fell to 50.1 from 50.5, remaining in expansion territory. The services PMI decreased to 50, while the construction PMI slid to 50.6 from 52.8, affected by adverse weather conditions like high temperatures and heavy rainfall. The composite PMI, combining manufacturing and non-manufacturing output, dropped to 50.2 from 50.7, indicating an overall expansion in China's business activity.
Concerns about China's economic growth losing steam persist due to persistently weak domestic demand and elevated production costs. The second quarter GDP expanded at the slowest pace in over three years, prompting expectations for more supportive government policies. However, analysts suggest major stimulus is unlikely, with policymakers potentially relying on existing tools like increased infrastructure project funding. Soaring goods exports in June, up 27% year-on-year in dollar terms, have been a main growth driver, and industrial profits also extended growth, albeit at a slower pace.