Chinese Manufacturing Shrinks for Third Consecutive Month... PMI Below Threshold (Comprehensive)

Domestic Demand Slump Pressures Growth Rate
Central Bank Decides on Liquidity Supply

The official indicator reflecting the trend of China's manufacturing sector has continued to contract for three consecutive months. Amid sluggish domestic demand putting pressure on economic growth, the sector shows little sign of recovery.

On the 31st, China's National Bureau of Statistics announced that the July Manufacturing Purchasing Managers' Index (PMI) recorded 49.4. This matches market expectations (49.4) but is slightly weaker compared to the previous month (49.5).

[Image source=AP Yonhap News]

The manufacturing PMI is compiled based on surveys of purchasing managers from 3,200 companies, including large state-owned enterprises, and serves as a key indicator of economic trends in the sector. A figure above 50 indicates an expansion phase, while below 50 signals contraction.

The manufacturing PMI, which had fallen below the baseline since October last year, showed signs of recovery in March (50.8) and April (50.4), but has remained in contraction territory for three consecutive months including May (49.5), June (49.5), and this month.

The non-manufacturing (services) PMI released on the same day recorded 50.2, also matching expectations (50.2) but declining from the previous month (50.5).

Earlier, China's second-quarter gross domestic product (GDP) growth rate announced on the 15th stood at 0.7% year-on-year, falling short of market expectations (1.1%). The sluggish domestic demand appears to be the main factor, with June retail sales in China increasing by only 2.0% compared to last year, significantly below the forecast (3.3%).

In response, China is attempting to stimulate domestic demand by injecting liquidity into the market. On the 22nd, the People's Bank of China, the central bank, lowered the 5-year loan prime rate (LPR) to 3.85% per annum and the 1-year LPR, which serves as the benchmark for credit and corporate loans, to 3.35% per annum, each by 0.1 percentage points. This move broke market expectations of a freeze and clearly signaled support for housing demand and private consumption.

This content was produced with the assistance of AI translation services.