China's factory activity unexpectedly shrinks in July as demand sags

BEIJING: China’s factory activity unexpectedly slipped into contraction in July, pressured ‌by shrinking new orders that reinforced concerns over slowing economic growth, weak demand at home and elevated production costs.

The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 50.3 in June, below the 50-mark ​separating growth from contraction and hitting a 5-month low, according to a survey by ​the National Bureau of Statistics. It missed the median forecast for ⁠50 in a Reuters poll.

The non-manufacturing PMI, which includes services and construction, also contracted, declining ​to 49 from 50.2 in June. The composite PMI came in at 49.3 compared with ​a 50.6 reading the previous month.

The grim readings underscore the headwinds confronting the economy with growth already slowing in the second quarter despite solid external demand.

Gross domestic product growth in the second quarter ​slowed to 4.3% from 5.0% in the first three months, below the official annual ​target of 4.5%-5%, adding pressure on policymakers to deliver stronger stimulus measures to shore up domestic demand ‌and ⁠investment.

PMI data released by the NBS showed that demand dropped sharply, with the subindex for new orders sinking to 48.5 from 51.2 the previous month. The gauge for new export orders also contracted, coming in at 49.6 in July compared with 50.1 in ​June.

Yuan eases from 3-year peak as factory activity stalls

Strong manufacturing and goods ​exports in the ⁠first half of the year have somewhat cushioned the Chinese economy from the Middle East oil shock and helped offset weaknesses in ​the property market and employment, but economic data released earlier this ​month showed ⁠that growth had lost steam and structural imbalances had deepened.

The Politburo, China’s top decision-making body, pledged in a meeting on Thursday to “attach great importance” to the difficulties and challenges in ⁠the economy, ​and said the government would leverage existing policies ​and roll out new policies in a timely manner.

It reiterated policy pledges for expanding domestic demand, but did ​not unveil specific new measures.