(July 31): China’s factory activity unexpectedly contracted for the first time in five months and construction slumped to the lowest since the start of the pandemic, suggesting economic weakness is becoming more entrenched.
The official manufacturing purchasing managers’ index slipped to 49.2 in July, below the 50 threshold separating growth from contraction. The median estimate of economists surveyed by Bloomberg was 50.1.
The non-manufacturing measure of activity in construction and services fell more than forecast to 49 — the lowest since December 2022 — from 50.2 last month, the National Bureau of Statistics (NBS) said Friday. The construction PMI plummeted to 47.
Reaction in markets was muted after the data release. Chinese government bonds largely traded flat, with the 30-year yield hovering near the lowest since November. The offshore yuan was little changed after rallying overnight to the strongest level since early 2023.
The abrupt deterioration will intensify concerns over the health of China’s economy after worries about it emerged from April, as growth weakened and became more unbalanced. Though the energy shock unleashed by the war in Iran has helped drag China out of its yearslong deflation, consumer and business confidence is still sluggish.
Disruptions caused by summer heat waves, flooding and heavy rainfall were a major factor for construction in several areas, according to NBS statistician Huo Lihui. The effect of a high base last year, alongside the “traditional off-season” for some sectors, proved to be a drag on the manufacturing PMI, Huo said in a statement accompanying the data release.
Investors are increasingly focused on whether policymakers will unveil stimulus measures to stabilise the economy after the government dialed back spending on infrastructure in recent months.
Economic growth slowed to 4.3% in the second quarter from 2025, the weakest quarterly growth in more than three years. But a strong first quarter means that growth in January-June was 4.7%, within this year’s official target range of 4.5% to 5%.
Top officials pledged to “roll out pragmatic and effective new policies in a timely manner” during a key policy meeting on Thursday.
With exports soaring at a double-digit pace this year, economists had expected officials to act with little urgency for now in introducing any fresh stimulus measures. Policymakers also pledged to speed up the pace of public spending and the use of funds raised through government bond.
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