China’s manufacturing sector contracted for the fifth consecutive month in August, according to an official survey released on Sunday. This indicates that producers are awaiting clearer signals on a trade agreement with the U.S., while domestic demand remains weak.
The official Purchasing Managers’ Index (PMI) slightly increased to 49.4 in August from 49.3 in July, still below the 50 threshold that separates growth from contraction, and fell short of the median forecast of 49.5 from a Reuters poll.
China’s economy is facing challenges from declining exports due to U.S. tariffs, a downturn in the property market, increased job insecurity, heavily indebted local governments, and severe weather conditions. Economists warn these factors could jeopardize Beijing’s ambitious growth target of “around 5%” by 2025.
The non-manufacturing PMI, which covers services and construction, showed faster growth, rising to 50.3 from 50.1 in August, as reported by the National Bureau of Statistics (NBS).
The NBS composite PMI, combining manufacturing and non-manufacturing data, reached 50.5 in August, up from 50.2 in July.
In the third quarter, China’s economic momentum has slowed due to consistently weak domestic demand and a cooling property market, noted Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“The macroeconomic outlook for the remainder of the year heavily depends on the strength of exports and whether fiscal policies become more supportive in Q4,” Zhang stated.
Despite July’s export numbers surpassing expectations, the increase was bolstered by a low base and driven by a rise in shipments to Southeast Asia, as Chinese exporters strive to maintain market share amid concerns over losing access to the U.S., the world’s largest consumer market—a situation some producers describe as a “mad rat race.”
Earlier this month, the U.S. and China agreed to extend their tariff truce for another 90 days, keeping tariffs at 30% on Chinese imports and 10% on U.S. goods, yet the ongoing uncertainty is eroding confidence on both sides of the Pacific.
Profits at Chinese industrial firms declined for the third consecutive month in July, official data revealed on Wednesday, underscoring the struggles businesses face with weak demand and persistent factory-gate deflation, maintaining pressure on Beijing to introduce more stimulus measures.
Policymakers have increased consumer subsidies; however, a prolonged property slump continues to hinder spending, as real estate remains a significant source of household wealth.
The reluctance of households to secure mortgages was evident in July’s bank lending data, which unexpectedly contracted for the first time in two decades.
Consumer spending could further decline if a recent ruling by China’s top court, preventing firms and employees from evading social insurance payments, results in job losses, with many companies and workers already struggling financially. Urban unemployment rose slightly to 5.2% in July from 5% in June.
This decision aims to aid cash-strapped local authorities, who are deprived of land-sale revenue, in replenishing depleted pension funds as demands on public finances increase. For example, extreme weather alone has caused $2.2 billion in road damage since July 1.
Reuters’ analysts forecast the private sector RatingDog PMI to rise to 49.7, up from 49.5 the previous month. The data will be released on Monday.
