China’s factory activity contracted for a fourth consecutive month in July, while non-manufacturing activity also slowed, indicating the struggle of the world’s second-largest economy to revive growth momentum in the face of weak global demand. According to data from the National Bureau of Statistics, the official manufacturing purchasing managers’ index (PMI) for July came in at 49.3, slightly better than the expected 49.2 and higher than the June figure of 49.0. However, non-manufacturing PMI dropped to 51.5, its weakest reading this year and fourth-straight monthly decline.
Senior NBS official Zhao Qinghe noted that some enterprises reported a complicated and severe external environment, with decreased overseas orders and insufficient demand remaining the main challenges. These readings for July are in line with the “tortuous” economic recovery mentioned by China’s top leaders, who attributed it to insufficient domestic demand, operational difficulties for certain enterprises, risks in key areas, and a complex external environment.
The employment sub-indexes for both manufacturing and non-manufacturing sectors declined in July, indicating lingering softness in the job market. Moreover, the youth unemployment rate in China reached successive record highs. The service industry, which employs many young workers, saw its sub-index slow by 1.3 percentage points compared to the previous month. Business expectations among non-manufacturing sectors also declined. However, the manufacturing sector’s production and business activity expectation index saw an increase, thanks to policy support for private enterprises and domestic demand expansion.
The NBS attributed the decline in construction activity, down 4.5 percentage points in July, to extreme weather conditions. Julian Evans-Pritchard, the head of China at Capital Economics, observed that while downward pressure on manufacturing eased slightly, it was outweighed by a sharp deceleration in construction and cooling services activity. He also added that any reacceleration in growth is likely to be modest as officials take a restrained approach to stimulus.
Despite the challenges, there were some positive signs. The new orders and raw materials inventory sub-indexes showed month-on-month improvements, which supported the slightly better-than-expected manufacturing PMI reading. The purchase price index and ex-factory price index of major raw materials also saw meaningful increases, indicating an improvement in pricing power.
Overall, China’s economic recovery remains slow, with the manufacturing and non-manufacturing sectors both facing headwinds. Policymakers are expected to continue implementing measures to support growth, but the impact may be limited. It is essential for China to address domestic demand issues and navigate the complex global environment to sustain a more robust recovery.