Event Summary: On July 31, China’s National Bureau of Statistics released the purchasing managers’ index (PMI) data for July, showing the manufacturing PMI at 49.4%, a slight decline of 0.1 percentage points from the previous month.
Core Insight: The latest PMI numbers suggest a slight weakening in domestic demand, particularly for commodities, with deeper underlying trends when adjusting for seasonal factors and delivery time metrics.
Adjusted PMI Signals Deeper Decline: The headline PMI figure masked a more pronounced drop when the “supplier delivery times” index, which acts inversely to other indicators, was taken into account. The supplier delivery times index fell by 0.2 percentage points to 49.3%, which under normal circumstances would suggest stronger demand leading to delayed deliveries. However, this was not the case in July, as new orders continued to decline, influenced more by logistical disruptions due to extreme weather conditions. Adjusting for this, the actual PMI would have slipped by 0.2 percentage points to 49.2%.
Manufacturing Production and Demand Dynamics: Both supply and demand in the manufacturing sector showed signs of contraction, with demand lagging further behind. The production index retreated 0.5 percentage points to 50.1%, still above the neutral threshold, indicating ongoing albeit slower recovery. Meanwhile, the new orders index fell 0.2 percentage points to 49.3%, remaining in contractionary territory. A closer look at order components revealed that domestic demand orders dipped by 0.3 percentage points to 49.4%, pointing to a sharper decline.
Service Sector Resilience and Construction Weakness: The service sector PMI, although down 0.2 percentage points to 50%, showed less seasonal decline than usual, with industries tied to travel and consumption holding up well. Conversely, the construction sector PMI dropped more than seasonally expected by 1.1 percentage points to 51.2%, partly due to extreme weather, but also reflecting a weakening trend in investment.
Policy Outlook and Economic Targets: Despite the subdued demand outlook, particularly in real estate and exports, the political bureau meeting underscored the need for accelerated implementation of growth-stabilizing policies. With developed countries’ demand-supply gaps closing and the expiration of tariff exemptions, export pressures are expected. Coupled with reduced construction activity, these factors could dampen domestic demand. However, the meeting’s push for expedited policy measures and increased infrastructure spending could provide a moderate boost to investment, keeping the full-year economic growth target of around 5.0% within reach.
Regular Tracking Highlights: The overall picture shows a marginal decline in manufacturing sentiment and a slowdown in non-manufacturing expansion. The manufacturing PMI hovered in contraction territory at 49.4%, with production and new orders being primary drags. The services and construction sectors also displayed weakening trends, with the former maintaining a slight expansion and the latter contracting.
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