China Factory Activity Contracts in July Missing Forecasts

China's manufacturing sector unexpectedly entered contraction territory in July, with the official purchasing managers' index (PMI) falling to 49.2 from 50.3 in June. This marks the first contraction since February and missed economist forecasts of approximately 50.1. The slump was driven by a 38-month low in new orders and disruptions caused by typhoons, although high-tech and equipment manufacturing remained in expansion.

Non-manufacturing activity also weakened significantly, with the services and construction PMI falling to 49.0, the lowest level since 2022. The National Bureau of Statistics attributed the decline to wholesale trade, monetary financial services, and the real-estate sector. These figures follow a second-quarter GDP growth of 4.3 percent, the slowest pace in more than three years.

Xi Jinping acknowledged the difficulties and challenges facing the economy and pledged to accelerate fiscal spending to tap domestic demand in the second half of the year. To support a national growth target of 4.5-5.0 percent, the Politburo requested that local governments increase spending to combat weak consumption and a prolonged property sector crisis.