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China’s Factory Activity Contracts for Fourth Consecutive Month, Non-Manufacturing Activity Slows

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Ziad Najjar
Ziad Najjar is an Egyptian author who studied business and finance in the United States and has a keen interest in media. He combines his expertise in these fields to create informative and engaging works accessible to a broad audience.

China’s Factory Activity Contracts for Fourth Consecutive Month

China’s factory activity has contracted for the fourth month in a row in July, while non-manufacturing activity has also slowed down to its lowest point this year. These figures reflect the challenges faced by the world’s second-largest economy as it struggles to boost growth amidst weak global demand.

The official manufacturing purchasing managers’ index (PMI) for July was 49.3, slightly better than the 49.0 in June. However, this is still below the 50-point mark that indicates expansion. The non-manufacturing PMI for July was 51.5, the lowest reading this year and a decline from the previous month’s 53.2.

Senior National Bureau of Statistics (NBS) official, Zhao Qinghe, noted that some surveyed enterprises reported a complicated and severe external environment, with decreased overseas orders and insufficient demand as their main difficulties.

These figures align with the “tortuous” economic recovery described by China’s top leaders, who attributed it to insufficient domestic demand, operational difficulties for some enterprises, risks in key areas, and a challenging external environment.

Employment Challenges and Business Expectations

Both the manufacturing and non-manufacturing sectors experienced a decline in employment sub-indexes in July, indicating ongoing softness in the job market. Moreover, the non-manufacturing sectors saw a decline in business expectations compared to the previous month.

The NBS reported that the service industry, which is a major employer of young workers, experienced a 1.3 percentage point slowdown in July. However, the manufacturing sector saw a 1.7 percentage point increase in the production and business activity expectation index, thanks to policy support for private enterprises and domestic demand expansion.

Impact of Extreme Weather on Construction

The NBS highlighted that extreme weather conditions led to a 4.5 percentage point decline in construction activity in July compared to the previous month. This decline, along with cooling services activity, outweighed the slight easing of downward pressure on manufacturing.

Julian Evans-Pritchard, head of China at Capital Economics, mentioned that a restrained approach to stimulus from officials may limit the extent of the expected growth turnaround later this year.

Positive Signs and Pricing Power

Despite the overall contraction, there were some positive signs. New orders and raw materials inventory sub-indexes showed month-on-month improvements, contributing to the slightly better-than-expected manufacturing PMI reading.

The NBS also reported meaningful increases in the purchase price index and ex-factory price index of major raw materials, indicating an improvement in pricing power.

Correction: This story was updated to correct the month for the latest PMI data.

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