The Chinese economy continues to show signs of weakness, based on official data released by the Chinese government. In July, the manufacturing Purchasing Managers’ Index (PMI) dropped to 49.4, hitting a five-month low, while the non-manufacturing PMI fell from 50.5 in June to 50.2, below expectations.
PMI and NMI, with a threshold set at 50%, indicate expansion above 50% and contraction below 50%. According to the data from the National Bureau of Statistics of China released on July 31st, the manufacturing PMI for July dropped to 49.4, a decrease of 0.1% from the previous month, marking the third consecutive month in contraction and reaching a new five-month low.
Breaking down by enterprise size, the PMI for large enterprises was 50.5%, up by 0.4 percentage points from the previous month, while medium and small enterprise PMIs were 49.4% and 46.7% respectively, decreasing by 0.4 and 0.7 percentage points from the previous month.
In terms of classification indices, among the 5 sub-indices that make up the manufacturing PMI, the production index was above the threshold, while the new orders index, raw material inventory index, employment index, and supplier delivery time index were below the threshold.
Some key sub-indexes saw declines, with the production index dropping from 50.6 in June to 50.1, and the new orders index decreasing from 49.5 in June to 49.3.
Wang Qing, Chief Macro Analyst at Orient Securities, mentioned to a Chinese media outlet that in July, the new orders index for manufacturing PMI fell by 0.2 percentage points to 49.3%, remaining in contraction for three consecutive months. Apart from adverse weather conditions in July, the continuous adjustments in the real estate sector would directly suppress the demand for building materials like steel and cement. Additionally, the slump in the property market leads to a wealth shrinkage effect, impacting consumer confidence.
In July, the non-manufacturing PMI, covering service and construction activities, also saw a slight decline. According to statistics, the NMI dropped from 50.5 in June to 50.2, slightly below the market expectation of 50.3.
Breaking it down by industry, the construction business activity index was 51.2%, a 1.1% decrease from the previous month, while the service business activity index stood at 50.0%, at the threshold.
The new orders index was 45.7%, down by 1.0% from the previous month, indicating a drop in market demand in the non-manufacturing sector. By industry, the new orders index for construction was 40.1%, down by 4.0% from the previous month, and for services, it was 46.7%, down by 0.4%.
Moreover, the comprehensive PMI output index for July was 50.2%, a 0.3% decrease from the previous month, marking the lowest level since January 2023.
Zhao Qinghe, Senior Statistician at the National Bureau of Statistics Service Industry Survey Center, mentioned that factors such as the traditional off-season for production, insufficient market demand, and extreme weather conditions like high temperatures and floods in some regions have impacted business operations, leading to a downturn in the manufacturing sector in July.
Reuters reported on the 31st that due to continued sluggish domestic demand in China and geopolitical pressures, there is a strong sense of pessimism in manufacturing activities. PMI has been in contraction for the third consecutive month in July. Looking at sub-indices such as “new export orders” and “factory prices,” factory owners are trying to lower prices to boost shipments.
According to the Wall Street Journal, Lynn Song, Chief Economist for the Greater China region at ING Group, stated that the soft PMI data for the past three months, combined with the impending tariffs on electric vehicles and other products could increase the likelihood of a slowdown in industrial activities in the coming months. The slowdown in manufacturing could intensify the urgency to promote growth in other economic sectors. Market confidence remains low, and consumer spending may continue to be weak.