The manufacturing sector in China continues to exhibit signs of weakness, as evidenced by the recent contraction in its manufacturing purchasing manager's index (PMI) for the third consecutive month. The National Bureau of Statistics reported on Wednesday that China's manufacturing PMI marginally decreased from 49.5% in June to 49.4%, indicating persistent sluggish demand within the sector.
This dip not only reflects lower demand but also highlights delays in the delivery times of raw materials crucial for production. Among the various sub-indices tracked within the PMI, production experienced the most significant decline, decreasing by 0.5 percentage points to reach 50.1%. This indicates that while production remains slightly above the contraction threshold, it is facing headwinds that may threaten its stability moving forward. Conversely, the non-manufacturing PMI, although still above the expansion point, also saw a decline from 50.5% to 50.2%, marking its lowest reading since November 2023.
This decline raises concerns over the health of industries heavily reliant on consumer spending, including services, retail, capital market services, and real estate, all of which are now at risk of slipping into contraction territory once again. Dutch multinational banking firm ING has issued a cautionary note regarding industrial activity in the upcoming months, forecasting that further softening in the PMI could lead to significant pullbacks in manufacturing.
Lynn Song, ING's chief economist for Greater China, emphasized the essential role that manufacturing has played as a growth driver during the first half of the year. She reiterated the importance of other economic sectors picking up the slack should manufacturing continue on a downward trajectory. In light of these developments, Song recommended that the Chinese government expedite state-led investment initiatives, particularly by enhancing the issuance of special bonds.
This step would be critical in ensuring that China remains on track to achieve its ambitious target of 5% gross domestic product growth for the year. The interplay of manufacturing dynamics and government investment strategies will be pivotal in shaping the overall economic landscape in the coming months..