China’s factory activity shrinks in July as demand falters, fuelling slowdown concerns
By Yukun Zhang and Ryan Woo
BEIJING, July 31 (Reuters) – China’s factory activity unexpectedly slipped into contraction in July, pressured by shrinking new orders that reinforced concerns over slowing economic growth, weak demand at home and elevated production costs.
Strong manufacturing and goods exports in the first half of the year have somewhat cushioned the Chinese economy from the Middle East oil shock and helped offset weaknesses in the property market and employment, but economic data released earlier this month showed that growth had lost steam.
The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 50.3 in June, below the 50 mark separating growth from contraction and hitting a five-month low, according to a survey by the National Bureau of Statistics (NBS) released on Friday. It missed the median forecast for 50 in a Reuters poll.
The non-manufacturing PMI, which includes services and construction, also declined below the 50 mark from 50.2 the previous month. At 49, the measure in July was the weakest since December 2022.
The grim readings underscore the headwinds confronting the economy with growth already slowing in the second quarter despite solid external demand.
The PMI data showed that downward pressure on the economy had increased, said Zhang Liqun, an analyst with the China Federation of Logistics & Purchasing.
“The constraint from weak domestic demand on the release of production and supply capacity has become a prominent problem, and industries and companies are facing considerable challenges,” Zhang said.
China’s gross domestic product growth in the second quarter slowed to 4.3% from 5.0% in the first three months, below the official annual target of 4.5%-5%, adding pressure on policymakers to deliver stronger stimulus measures to shore up domestic demand and investment.
ECONOMIC IMBALANCES DEEPEN
The PMI data showed a sharp drop in demand, with the subindex for new orders sinking to 48.5 from 51.2 the previous month. The gauge for new export orders also contracted, coming in at 49.6 in July compared with 50.1 in June.
Dan Wang, China director at Eurasia Group, said demand from major markets such as the European Union had been affected by the conflict in the Middle East, as European buyers, fearing a possible recession, turned cautious.
The latest factory surveys also underlined the deepening imbalances in the economy.
Although the subindex for production also contracted, the 49.9 reading suggested firmer supply compared with demand.
