China’s factory activity contracts for third straight month, but ‘silver lining’ emerges

China’s official manufacturing purchasing managers’ index (PMI) remained in contraction for a third consecutive month in July

Reading Time:3 minutes

Workers push a cart loaded with cocoon silk at a factory of a silk company in southeastern China’s Chongqing municipality. Photo: AFP

Published: 9:38am, 31 Jul 2024Updated: 1:06pm, 31 Jul 2024

Factory activity in China remained in contraction for a third consecutive month in July, suggesting that the economy weakened further, but analysts expect a recovery in the coming months with Beijing “intent on ramping up policy support”.

The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – stood at 49.4 in July, down from a reading of 49.5 in June, the National Bureau of Statistics (NBS) said on Wednesday, in line with a forecast of analysts from Reuters.

A reading above 50 typically indicates an expansion of economic activity, whereas a reading below implies a contraction.

Analysts attributed the fall to weak domestic demand, while the NBS said the manufacturing index was “basically stable”. However, it did point to a decline in market demand; extreme weather such as high temperatures and floods; and traditional off-season production.

“The PMIs for July suggest that China’s economy weakened further this month. But the government now seems intent on ramping up policy support, which should underpin a recovery in activity in the coming months,” said Gabriel Ng, assistant economist at Capital Economics.

On Tuesday, China’s Politburo vowed to step up macro policies and stabilise market confidence to ensure that the annual economic growth goal of around 5 per cent was achieved, with the world’s second-largest economy facing “increasing negative influence”.