China’s manufacturing activity in July shrank for a third consecutive month, as shown by an official factory survey on Wednesday. This trend has raised concerns among experts and economists about the need for more stimulus measures from Beijing due to a prolonged property crisis and job insecurity impacting overall growth.
The official Purchasing Managers’ Index (PMI) for July fell to 49.4, slightly lower than June’s 49.5, signaling a contraction in the sector. Despite beating a median forecast of 49.3 in a Reuters poll, the continuous decline is worrisome for the Chinese economy. This decline comes after the world’s second-largest economy experienced slower-than-expected growth in the second quarter, especially in the consumer sector. Retail sales growth reached an 18-month low due to deflationary pressures, leading businesses to reduce prices across various product categories.
The challenging environment in the consumer sector has led to concerns about potential economic implications. While China’s state planner announced the allocation of 300 billion yuan for a consumer trade-in program, this amount may not be sufficient to drive substantial economic recovery. Analysts are skeptical about the impact, as it represents a small percentage of economic output and retail sales for 2023.
Chinese exports have been a source of support for factory managers, with solid growth in recent months. However, uncertainties arise as trade partners consider imposing import tariffs, which could affect this positive momentum. In June, outbound shipments surged, while imports unexpectedly declined, suggesting weak domestic demand and concerns about potential tariffs from trading partners.
Non-Manufacturing Activity and Property Crisis
On the non-manufacturing front, activity expanded at a slower pace in July, indicating weakening domestic demand for services. This trend reflects the ongoing property crisis in China, where falling property valuations have impacted consumer confidence and spending. New home prices experienced a significant decline in June, the sharpest in nine years.
In response to these economic challenges, analysts anticipate that the government will introduce additional policy measures to support the property sector. After a meeting of the Politburo, a top decision-making body of the ruling Communist Party, state media reported plans to implement macroeconomic policies and counter-cyclical adjustments to boost domestic demand.
China’s manufacturing activity in July has raised concerns about the broader economic landscape, with ongoing challenges in the consumer sector, fluctuating exports, and a distressed property market. The government’s response through policy measures will be crucial in navigating these turbulent times and fostering sustainable growth.
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