Key facts
- China's official manufacturing PMI contracted to 49.2 in July, down from 50.3 in June.
- The non-manufacturing PMI fell to 49.0 from 50.2, indicating contraction in services and construction.
- The Caixin China General Manufacturing PMI also fell to 49.5, signaling 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.
China's economic activity contracted across both manufacturing and services sectors in July. The official manufacturing purchasing managers' index (PMI) dropped to 49.2 from 50.3 in June, marking the lowest reading since April. The non-manufacturing gauge, encompassing construction and services, also fell to 49.0 from 50.2. Concurrently, the Caixin China General Manufacturing PMI declined to 49.5 from 50.4, signaling a contraction in factory activity for the second time in three months. These downturns are attributed to a sharper decline in new export orders amid global trade uncertainty, a slowdown in domestic new orders growth, and elevated raw material prices. Production and new orders sub-indexes both fell, while selling prices decreased due to intensified competition. Despite these challenges, business sentiment improved to a four-month high of 52.6 percent, driven by hopes for better economic conditions and promotional sales expectations. However, overall optimism remains below the series average. The construction PMI slowed to 50.6 from 52.8, impacted by adverse weather. The composite PMI, combining manufacturing and non-manufacturing output, decreased to 50.2 from 50.7, indicating a slower pace of overall business activity expansion.
Concerns persist about China's economic growth losing momentum due to persistently weak domestic demand and high production costs. The second quarter GDP expanded at its slowest pace in over three years, leading to expectations of more supportive government policies. However, analysts suggest major stimulus is unlikely, with policymakers potentially favoring existing tools like increased infrastructure project funding.