Introduction

China’s factory activity in August contracted for the fifth consecutive month, while non-manufacturing activity reached its lowest point of the year. These indicators suggest that the slowdown in the world’s second-largest economy may not have reached its bottom yet.

Manufacturing Purchasing Managers’ Index (PMI)

The official manufacturing PMI slightly improved to 49.7 in August from 49.3 in July, according to data released by the National Bureau of Statistics. This exceeded the median forecast of 49.4 in a Reuters poll. A PMI reading above 50 indicates expansion, while a reading below 50 indicates contraction.

According to Zhao Qinghe, a senior NBS official, the survey results reveal that insufficient market demand remains the main challenge for enterprises. He also emphasized the need to further consolidate the foundation for the recovery and development of the manufacturing industry.

Non-manufacturing PMI

The non-manufacturing PMI, which covers service sectors, declined to 51.0 in August compared to 51.5 in July and 53.2 in June.

There are growing concerns that China’s economy may not achieve Beijing’s targeted 5% growth this year due to issues in the country’s property sector, such as credit problems and weak sales.

Uneven Recovery in Chinese Economy

While sub-indexes for production and new orders in the manufacturing sector reached five-month highs, the new orders sub-index for non-manufacturing sectors fell to 47.6. The construction industry’s new order index increased to 48.5, while the service industry’s new order index decreased to 47.4.

In August, input prices for both manufacturing and non-manufacturing sectors rose, indicating potential inflationary pressures. Previous data had suggested disinflation or deflationary trends.

Conclusion

The continuous contraction in China’s factory activity and the decline in non-manufacturing activity highlight the ongoing challenges faced by the country’s economy. The government has implemented targeted measures to stimulate economic growth, including boosting lending, stocks investment, and housing demand.