China’s factory activity unexpectedly contracted in July, marking the first such decline in five months and underscoring the fragility of a rebound that had been powered largely by front-loaded exports in the second quarter.
The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 50.3 in June, the National Bureau of Statistics said Friday, undershooting economist forecasts. PMI readings are measured on a scale of 0 to 100, with figures above 50 signalling expansion and those below indicating contraction.
The details pointed to broadening weakness. The sub-index for new orders dropped to 48.5, its lowest level since 2023, from 51.2 the previous month, while the production sub-index eased to 49.9 from 51.4. Construction and services activity, captured in the non-manufacturing PMI, fell to 49 from 50.2, with construction sinking to its weakest reading since the pandemic.
“The latest reading remains an unpromising start to the first wave of economic data for the second half of the year,” said Lynn Song, chief economist for Greater China at ING Bank.
The slowdown reflects a persistent divide in the world’s second-largest economy. Robust exports of technology-related goods, including semiconductors and electric vehicles, have propped up overall growth, but those capital-intensive sectors generate fewer jobs and do little to lift household spending.
Domestic demand, by contrast, has remained subdued. A yearslong slump in the property sector continues to weigh on consumer confidence, while fierce competition for jobs has left many workers cautious about spending. Analysts at Capital Economics noted that soft demand for domestic goods, including weaker building activity, dragged on the July figures, adding that several typhoons striking China during the month may have further disrupted output.
The reading follows a broader deceleration in growth. The economy expanded 4.3% in the April–June quarter, its slowest annual pace in more than three years, as the boost from the export surge began to fade. Earlier this year, factory activity had reached a one-year high, a rebound that has since proven difficult to sustain.
The mixed picture complicates efforts by policymakers to shore up momentum. Support has so far leaned on external demand and industrial upgrading, but sustaining growth will likely require measures aimed at reviving consumption and stabilising the housing market.
Attention now turns to how Beijing responds in the second half of the year, with markets watching for fresh stimulus signals and further data to gauge whether July’s contraction marks a temporary setback or the start of a deeper cooling.