An employee operates a spinning machine at a textile factory on May 26, 2022 in China. China’s factory activity contracted unexpectedly in July as new virus outbreaks and a darkening global outlook weighed on demand.
Zhu Haipeng | China Visual Group | Getty Images
China’s factory activity unexpectedly contracted in July after recovering from a Covid-19 lockdown the previous month, as new virus outbreaks and a darkening global outlook weighed on the demand, a survey showed on Sunday.
The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth, the National Statistics Office (NBS).
Analysts polled by Reuters had expected it to improve to 50.4.
“The level of economic prosperity in China has fallen, the foundations for recovery still need to be consolidated,” NBS senior statistician Zhao Qinghe said in a statement on the bureau’s website.
Continued contraction in the oil, coal and metal smelting industries was one of the main factors driving the July manufacturing PMI down, he said.
The reading was the lowest in three months, with sub-indices for production, new orders and employment all hiring.
Chinese manufacturers continue to struggle with high commodity prices, which are squeezing profit margins, as the export outlook remains clouded by fears of a global recession.
Weak demand has constrained the recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Growth in the third quarter may face bigger challenges than expected as the recovery is slow and fragile.”
July’s official non-manufacturing PMI fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell from 54.1 to 52.5.
China’s economy barely grew in the second quarter amid widespread lockdowns, with top leaders recently signaling that its strict zero-Covid policy would remain a priority.
Policymakers are prepared to miss their GDP target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party.
Beijing’s decision to drop mention of the growth target has quelled speculation that the authorities would launch massive stimulus measures, as they have often done in past recessions.
Capital Economics says policy easing, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery longer.
Recovery failed
After a rebound in June, the recovery in the world’s second-largest economy has faltered as outbreaks of Covid led to a tightening of activity in some cities, while the once-powerful housing market crisis in crisis
Chinese manufacturers also continue to struggle with high commodity prices, which are squeezing profit margins, and export prospects are clouded by fears of a global recession.
The southern Chinese megacity of Shenzhen has pledged to “mobilize all resources” to curb a slowly spreading Covid outbreak, ordering strict implementation of tests and temperature checks and lockdowns to in the buildings affected by Covid.
The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas have reduced curbs this month to combat new outbreaks.
Lockdown measures had some impact on 41% of Chinese companies in July, according to World Economics, although its manufacturing business confidence index rose significantly from 50.2 in June to 51.7 in July.