China’s Factory Activity Contracts for Fourth Month in a Row
Introduction
China’s factory activity contracted for a fourth consecutive month in July, while non-manufacturing activity slowed to its weakest this year. The country is facing challenges in reviving its growth momentum due to soft global demand.
Manufacturing Activity
The official manufacturing purchasing managers’ index (PMI) for July was 49.3, slightly better than the median forecast of 49.2. A reading below 50 indicates a contraction in activity. Enterprises in the survey reported a complicated and severe external environment, decreased overseas orders, and insufficient demand as their main difficulties.
Non-Manufacturing Activity
China’s official non-manufacturing PMI for July was 51.5, the weakest reading this year. This indicates a slowdown in activity compared to previous months. A decline in employment sub-indexes for both manufacturing and non-manufacturing sectors also suggests lingering softness in the job market.
Challenges and Outlook
China’s top leaders described the economic recovery as “tortuous” due to insufficient domestic demand, operational difficulties for enterprises, risks in key areas, and a complex external environment. Policy support is expected to drive a modest turnaround later this year, but growth acceleration may be restrained.
Impact of Extreme Weather
Extreme weather conditions negatively affected construction activity, which declined by 4.5 percentage points in July compared to the previous month. Cooling services activity also experienced a sharp deceleration.
Positive Developments
There were some positive signs, such as month-on-month improvements in new orders and raw materials inventory sub-indexes. The purchase price and ex-factory price indexes for major raw materials also saw meaningful increases, indicating an improvement in pricing power.
Conclusion
China’s economic recovery faces ongoing challenges, but there are glimpses of improvement. Policy support and increased pricing power may contribute to a gradual turnaround in the coming months.
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