Overview

Chinese manufacturing activity unexpectedly shrank in July, as indicated by private purchasing managers index (PMI) data released on Thursday. This trend raises concerns about the cooling economic engines of the country.

The Caixin manufacturing PMI for July was 49.8, lower than the expected 51.4, and a significant drop from June’s 51.8. A PMI reading below 50 signifies contraction, marking the first decline since October.

The Caixin PMI results correspond with the official manufacturing PMI data released on Wednesday, which indicated the sector has contracted for three consecutive months.

It’s important to note that the Caixin reading typically diverges from official data, based on its focus on smaller private companies in Southern China, compared to larger state-run enterprises in the North.

The recent PMI reading suggests that the slowdown in manufacturing activity could be spreading more uniformly across China. Furthermore, it reflects the effects of heavy import tariffs in the European Union on China, notably affecting the electric vehicle sector.

According to Wang Zhe, a senior economist at Caixin Insight Group, the main challenges include insufficient effective domestic demand and weak market optimism.

Despite the disappointing PMI results, some encouraging statements from Chinese officials regarding potential stimulus measures have led to speculation about increased policy support from Beijing in the coming months. Analysts caution, however, that the actual implementation of these measures will be crucial for a successful economic recovery in China.