China’s factories posted slow growth in July, with persistent demand weakness and the domestic COVID-19 outbreak pushing the country’s vast manufacturing sector back into a new period of uncertainty.
A private survey conducted by Caixin on Monday showed a slow expansion of factory activity in July. This came on top of a bearish official poll on Sunday that showed the sector has indeed contracted over the past month.
The survey showed that the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) dropped from 51.7 in June to 50.4, well below expectations of a slight decline to 51.5, but well above the 50-point index mark that growth. separates it from contraction.
On Sunday, the official manufacturing PMI from the National Bureau of Statistics (NBS) fell to 49 in July, in an unexpected slowdown from 50.2 in June.
China’s manufacturing hubs, including Shanghai, saw a solid rebound from widespread COVID lockdowns in the spring in June, but momentum had already shown signs of breaking, with fresh virus flare-ups and weakening domestic and global demand as well as prolonged assets. Market downturn.
“Surveys show that China’s economic recovery slowed in July as a one-sided boost from a re-fade,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “This is in line with our view that activity will remain below trend in the coming quarters.”
In the Caixin survey, which focused more on smaller, export-oriented companies, a sub-index for output indicated a second monthly increase, but significantly slower than in June.
New orders – domestic and exports – also eased.
The employment index fell for the fourth month to its lowest level in 27 months. The companies blamed the staff crunch for cost-cutting, reduced sales and non-replacement of voluntary levers.
“Low-cost companies were cautious about expanding their workforce due to sluggish market demand,” said Wang Zhe, senior economist at Caixin Insight Group.
On a brighter note, companies’ input costs have increased only marginally, reducing profit margins after successive price hikes. However, due to soft demand, they had to cut their selling prices for the third consecutive month.
The growing toll on China’s economy is evident with the country’s top leaders indicating their preparedness to miss the government growth target for this year by about 5.5% and focus on achieving the best possible outcome.
Emphasizing the third quarter will be a crucial period for getting the economy back on track, Mr. Wang did not expect massive stimulus measures.
“Effective implementation of existing policies is a more practical option.”