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  • Domestic demand is still sluggish and recovery remains uneven
  • July data adds to evidence of weak growth in China: economists

China’s factory activity contracted for a third straight month in July, leaving the economy on a weak trajectory that’s frustrating Beijing’s efforts to sustain faster growth.

The official manufacturing purchasing managers’ index hit 49.4, the National Bureau of Statistics said Wednesday. The number matched economist forecasts and was slightly worse than June’s reading of 49.5. The gauge has stayed below the 50-mark separating growth from contraction for all but three months since April 2023.

The non-manufacturing measure of activity in construction and services fell to 50.2, the statistics office said, below a median forecast of 50.3 and suggesting a slowdown in expansion from June.

“The PMIs contribute to evidence of weak growth in China. Domestic consumption is weak whereas the exports are also facing headwinds from external markets,” said Woei Chen Ho, an economist at United Overseas Bank Ltd.

Chinese stocks opened weak and traded within a narrow range after the data was released, but they edged higher to gain as much as 0.8%.

What Bloomberg Economics Says…

China’s weak July PMIs signal a poor start to the third quarter that is likely to weigh on GDP growth — a worrying development given the undershoot in 2Q. The manufacturing sector contracted for a third straight month. The non-manufacturing gauge inched lower, but stayed in growth territory — largely due to construction activity that is being supported by government measures. The service sector, which has a heavy concentration of private firms, stalled.

Chang Shu, Chief Asia Economist, and David Qu, Economist

Read the full report here.

In a statement accompanying the data, NBS analyst Zhao Qinghe said manufacturing activity decreased because July is typically an off-season for production and there were “insufficient market demand and extreme weather such as high temperature and floods in some localities.”

China’s economy has performed unevenly this year, with manufacturing at times a bright spot while consumption has been weighed down by a prolonged real estate crisis.

The Communist Party’s 24-man Politburo vowed to make boosting consumer spending a greater policy focus in a meeting Tuesday. But the broad pledges were met with skepticism in the market, with economists calling for more specific policies.

“The Politburo meeting yesterday did not signal a significant change of policy stance in second half of the year. Without a meaningful change of fiscal policy stance, the growth outlook largely depends on how long the strong export growth can continue,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

China’s trade surplus hit a record high last month as exports surged and imports unexpectedly declined. The growing imbalance has spooked China’s trade partners.

The US and European Union — two of China’s biggest export markets — accuse Beijing of building excess capacity in its industries through state subsidies. They’re erecting new trade barriers that will hold back sales of key products like electric vehicles, and threatening even more.

Chinese officials, however, argue China’s manufacturing capacity is helping the world fight climate change and contain inflation.

“For decades, China has been a force of disinflation for the world through its supply of manufactured products with good value for money,” Vice Finance Minister Liao Min said in an exclusive interview with Bloomberg last week.

Written by: Bloomberg News — With assistance from Lucille Liu, Shinjini Datta, and Lin Zhu @Bloomberg