CHINA’S MANUFACTURING ACTIVITY SHRINKS FOR A FOURTH CONSECUTIVE MONTH

China’s manufacturing sector contracted again in July for the fourth straight month.

The country’s official purchasing managers index (PMI) registered 49.3 last month, after notching 49.0 in June, May and 49.2 in April, the National Bureau of Statistics (NBS) reported. Ratings below 50 indicate shrinking economic activity.

Ratings below 50 indicate shrinking economic activity.

The country that had been “manufacturer to the world” during the COVID War suffers from the global economic slowdown and consumers’ switch from spending on goods to services.

The country’s non-manufacturing sector also slumped, falling to its weakest this year with a PMI of 51.5. The figure has been sliding steadily since booking 56.4 in April as consumers have reined in spending following a short burst after anti-COVID lockdowns were lifted last November.

Construction activity fell by 4.5 points in July due to harsh weather, the NBS said.

Employment indexes for factory and non-factory jobs also were lower as youth unemployment continues to set records.

“Some enterprises reported that the current external environment is complicated and severe, overseas orders have decreased, and insufficient demand is still the main difficulty facing enterprises,” the NBS said in a statement announcing July’s result. 

However, new factory orders and factories’ stockpiles of raw materials increased in July, hinting that manufacturers expect business to pick up. 

“Downward pressure on manufacturing eased slightly, but this was more than outweighed by a sharp deceleration in construction and cooling services activity,” Julian Evans-Pritchard, chief China analyst at Capital Economics, said to CNBC.

“Policy support should drive a turnaround later this year,” he added, “but with officials taking a restrained approach to stimulus, any reacceleration in growth is likely to be modest,” he added.

TREND FORECAST: Global demand for factory goods has slowed and will remain below COVID-era levels for the foreseeable future and perhaps permanently, as countries “reshore” or “friend-shore” their supply chains.

Therefore, China’s recovery must be led either by government spending or domestic demand, not the exports that fueled it from early in this century through the COVID War.

Government debt exceeds the country’s GDP, as we reported in TK, and has sparked talks of a “debt crisis” by some officials.

As a result, government spending is not a viable leader for the domestic economic recovery.

China’s officials have pledged bold stimulus measures to spark consumer spending, restart factories, and revive the real estate sector, which remains in crisis.

However, no such strong policies have yet been implemented.

Beijing has little experience and less temperament for intrusive stimulus programs. It is unlikely to present any in the short term, which will allow the country’s economy to slump further. For additional China trends analysis and trend forecasts, see our ECONOMIC UPDATE in this issue.