Chinese manufacturing activity has contracted for the fourth consecutive month in July, reflecting the ongoing struggle of one of China’s key economic sectors amidst weak demand and reduced private spending. This trend was evident in the data released on Monday by the National Bureau of Statistics.
The official Manufacturing Purchasing Managers’ Index (PMI) was 49.3 for July, slightly above expectations of 49.2 and marginally higher than the previous month’s 49.0. A PMI reading below 50 signifies contraction, highlighting the continuing downturn in manufacturing activity over the past four months. However, there is a small silver lining as the PMI showed modest improvement in recent months.
Despite the lifting of anti-COVID restrictions in January, Chinese manufacturing activity – a vital driver of the economy – has continued to face difficulties throughout this year. The sector is wrestling with a severe deceleration in global demand due to adverse economic conditions, while local demand has also plummeted with the slowdown in capital and retail spending.
Moreover, a slump in China’s real estate sector has further hurt demand for manufactured goods, imposing additional strain on the wider economy. This downturn was mirrored in the non-manufacturing PMI, which dropped to 51.5 in July from 53.2 in the previous month, and the composite PMI, which descended to 51.1 from 52.5.
July’s weak PMI figures follow data earlier this month showing a substantial slowdown in Chinese economic growth in the second quarter. However, this deceleration in growth has sparked anticipation of further stimulus measures from the government.
This anticipation was evident in the performance of the financial markets. Despite the lackluster PMI data, Chinese stocks rallied, and the yuan also gained strength on Monday. Market attention was primarily focused on further stimulus measures, with officials slated to reveal more supportive policies on Monday. This anticipation of additional policy support from Beijing has fueled a robust rally in the Chinese markets over the past week.
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