On August 1st, data released by Caixin Media and S&P Global indicated that in July, the Caixin China Manufacturing Purchasing Managers’ Index (PMI) fell below expectations, dropping from 51.8 in June to 49.8. This is the first time since November 2023 that the index has dipped below the 50-point threshold, signaling a deterioration in the manufacturing sector.
The Manufacturing Purchasing Managers’ Index (PMI) uses 50% as the threshold, with a reading above 50% indicating expansion in economic activity, while a reading below 50% suggests contraction.
The supply still exceeds demand. The production index has remained in the expansion range for nine consecutive months, but in July it only slightly exceeded the threshold, indicating limited expansion in production. On the demand side, the performance is weaker, with the new order index falling into contraction territory for the first time since August 2023. Orders for investment and intermediate goods declined, while consumer goods continued to grow. According to surveyed companies, weak demand and customer budget cuts have led to a decrease in overall new business volume.
The reduction in new orders has led to the Purchasing Quantity Index falling below the threshold for the first time since October 2023. Companies are reluctant to increase their production inventory, and the raw materials inventory index is also below the threshold for the first time this year.
However, external demand continues to grow, with new export orders increasing for the seventh consecutive month, albeit at a slower pace.
Rising raw material prices continue to drive up production costs for manufacturing enterprises, with the index for purchase prices of raw materials showing a slight decline in the expansion range. The output price index, after briefly surpassing the threshold in June, returned to contraction territory in July. The survey shows that due to intensified competition, manufacturers have lowered selling prices, with price reductions mainly focused on investment goods.
Wang Zhe, a senior economist at the Caixin Think Tank, stated that in July, manufacturing supply slightly expanded, domestic demand declined, external demand stabilized, and purchasing quantity decreased. Insufficient domestic effective demand and weak market expectations remain the most prominent issues currently.
The day before, the Chinese National Bureau of Statistics announced that the July manufacturing PMI recorded 49.4, a slight decrease of 0.1% from the previous month, marking three consecutive months below the threshold.
Regarding this, a report by The Wall Street Journal quoted Lynn Song, Chief Economist for Greater China at ING Group, stating that the soft PMI data over the past three months, combined with the potential tariffs facing electric vehicles and other products, increases the likelihood of a slowdown in industrial activities in the coming months. A slowdown in manufacturing could exacerbate the urgency to boost growth in other economic sectors. Market confidence remains low, and consumer demand is likely to stay weak.
Compared to official data, the Caixin PMI covers more private and export-oriented enterprises.