Key facts
- China's manufacturing PMI increased to 49.8 in August, up from 49.2 in July.
- The manufacturing sector remained in contraction for the second consecutive month.
- Demand and output sub-indexes for manufacturing returned to expansion territory.
- The services and construction PMI remained stagnant at 49.0 in August.
- Economic imbalances persist, with manufacturing and exports driving growth over domestic consumption.
China's factory activity showed improvement in August, driven by stronger demand, but remained in contraction for the second consecutive month. The official manufacturing purchasing managers' index (PMI) rose to 49.8 from 49.2 in July, surpassing the median forecast of 49.6 but staying below the 50-mark that separates growth from contraction. Data from the National Bureau of Statistics indicated that sub-indexes for new orders and production returned to expansion territory above 50.
However, the non-manufacturing PMI, which encompasses services and construction, remained unchanged at 49.0, matching July's reading and marking the weakest level since December 2022. This suggests that China continues to rely on manufacturing and exports for growth, while domestic consumption and investment show signs of deterioration. Analysts, such as Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, cautioned that it is too early to definitively conclude that the economy has rebounded.
Zhang Liqun, an analyst with the China Federation of Logistics & Purchasing, noted that with the manufacturing PMI still in contraction, business confidence remains unstable. He suggested that increased government investment in public goods could help drive orders, consolidate business confidence, and support economic stabilization. Earlier data for the second half of the year showed slowing growth in goods consumption and industrial output, with fixed-asset investment extending declines and the property market still struggling.
Exports have been a growth driver, partly due to demand for AI-related shipments. Despite this, manufacturers relying on domestic demand face profit squeezes. China's top leaders have pledged additional policies to support the economy, which grew 4.3% in the second quarter, and accelerate infrastructure spending. The finance ministry has expanded loan interest subsidies, and the central bank indicated it would roll out measures without explicit policy rate cuts.