China’s factory activity unexpectedly slowed in July, the first such contraction in five months, weighing on the pace of broader growth for the world's second-largest economy.
The official manufacturing purchasing managers index, or PMI, fell to 49.2 from 50.3 in June, China's National Bureau of Statistics said Friday, worse than what economists had expected.
The sub-index on new orders fell to 48.5 in July — the lowest since 2023 — from 51.2 in June, while the sub-index for production fell to 49.9 from 51.4.
PMI readings, based on surveys of factory managers, are measured on a scale of 0 to 100. A reading above 50 indicates an expansion, and below 50 reflects a contraction.
“The latest (PMI) reading remains an unpromising start to the first wave of economic data for the second half of the year,” Lynn Song, a chief economist for Greater China at ING Bank, said in a commentary.
Weakness in domestic goods demand, including in building activity, contributed to the lower PMI figures, according to Capital Economics, while several typhoons that hit China in July may have also disrupted manufacturing.
China’s economy has been under pressure from sluggishness in domestic spending and investment, as a yearslong weakness in its massive property sector hits consumer confidence. Fierce competition for jobs has left workers worried over spending.
Robust exports, especially in technology-related products such as semiconductors and electric vehicles, have helped boost its overall growth momentum. But those are capital intensive sectors.
The economy grew at its slowest annual pace in more than three years in the April-June quarter, at 4.3%. That fell short of China's official full-year growth target of 4.5% to 5%.
Countries including the U.S. have also complained about excess industrial capacity in China from solar panels to autos and supported by heavy state subsidies. They said that’s resulting in China’s exports surge as its domestic demand slows, with its cheap goods posing a threat to many economies.
Beijing has hit back at those claims.
But China’s economic model still favors productivity through its policy preferences, said Gary Ng, a senior economist at French bank Natixis.
Economists expect China to continue to rely on exports to support its economic growth for the rest of the year.
Chinese leaders have also pledged to boost domestic consumption, including at a meeting of the ruling Communist Party’s decision-making Politburo on Thursday.
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