China’s Manufacturing Activity Continues to Shrink in July

China’s manufacturing activity has continued to shrink for the third consecutive month in July, according to an official factory survey released on Wednesday. This ongoing trend has raised concerns about the need for Beijing to implement further stimulus measures to counteract the negative impact of a protracted property crisis and job insecurity on economic growth.

The official purchasing managers’ index (PMI) dropped to 49.4 in July, down from 49.5 in June, falling below the critical 50-mark which separates growth from contraction. Although this figure surpassed the median forecast of 49.3 in a Reuters poll, it still indicates a significant decline in manufacturing activity within the world’s second-largest economy.

Lingering Consumer Sector Concerns

China’s economy grew slower than expected in the second quarter, with particular concerns surrounding the consumer sector. Retail sales growth hit an 18-month low as businesses were forced to lower prices due to deflationary pressures. This adverse trend has negatively impacted various industries, including automobiles, food, and clothing.

Government Stimulus Efforts

While the Chinese government recently announced a plan to allocate 300 billion yuan ($41.40 billion) in ultra-long treasury bonds to support a consumer trade-in program, some critics argue that this amount is insufficient to spur meaningful economic recovery. This investment only represents a small fraction of economic output and retail sales figures for 2023.

Although solid Chinese exports have provided some support to factory managers in recent months, concerns are mounting over potential tariffs from trade partners. The growing uncertainty surrounding import tariffs could hamper China’s export growth and overall economic stability in the long run.

Property Crisis and Domestic Demand

Meanwhile, non-manufacturing activity in China expanded at a slower pace in July, signaling weakening domestic demand for services. This trend underscores the lingering impact of the property crisis, which has led to falling property valuations and reduced household wealth, as a significant portion of wealth in China is tied to real estate.

Analysts anticipate that the Chinese government will introduce additional policy measures to support the property market and stimulate domestic consumption. Following a meeting of the Politburo, the top decision-making body of the ruling Communist Party, discussions are underway to enhance macroeconomic policies and counter-cyclical adjustments to boost domestic demand.

Overall, the persistent decline in manufacturing activity, coupled with challenges in the consumer sector and the property market, highlight the need for proactive government interventions to sustain economic growth and stability in China.