China manufacturing PMI contracts again
China's manufacturing PMI was 49.8 in August, contracting for a second month but beating forecasts, indicating ongoing economic strain.
China's official manufacturing activity contracted for a second consecutive month in August. The Purchasing Managers' Index (PMI) came in at 49.8, according to data released Monday by the National Bureau of Statistics.
This figure was slightly better than the 49.6 forecast by economists polled by Reuters and an improvement from July's 49.2. Any reading below 50 indicates contraction. The data maintains pressure on Beijing to bolster an economy where growth momentum is fading.
Economic Strain and External Support
The second quarter saw economic growth slow to 4.3%, its weakest pace since late 2022. Soft domestic demand and a protracted property slump continue to weigh on activity. Consumer spending has stalled, urban investment has contracted faster, and unemployment has ticked higher.
Exports have been a rare bright spot. A global boom in artificial intelligence infrastructure spending has lifted demand for Chinese-made tech goods. Outbound shipments recorded double-digit growth for most of the year, cushioning some domestic drag.
Diverging Sector Performance and Price Pressures
The August PMI release showed supply and demand both improved. The sub-indexes for production and new orders expanded to 50.4 and 50.6, respectively. New export orders also rebounded to 50.1 from 49.6 in July.
Performance varied sharply across manufacturing sectors. High-tech equipment manufacturing significantly outpaced the broader factory sector.
| Sector | Production & New Orders Reading |
|---|---|
| Electronic Machinery & Equipment | Topped 53 |
| Computer Communication Devices | Topped 53 |
| Consumer Goods Production | Lagged at 49 |
Sub-indexes for raw materials inventory and employment, however, remained in contractionary territory below 50. The factory-gate price sub-indexes pointed to renewed inflationary pressures, partly due to higher global crude and metal prices.
Zhiwei Zhang, president at Pinpoint Asset Management, noted the price gains were driven by supply constraints as demand remained weak. "The rise of commodity prices may have benefited some firms in the upstream manufacturing sector," he said.
Stimulus Expectations and Non-Manufacturing Weakness
Economists expect better growth for the rest of the year as adverse weather fades and local governments accelerate fiscal spending. Tianchen Xu, senior economist at the Economist Intelligence Unit, said Beijing is likely to further accelerate spending due to increasing worry over collapsing urban investment.
"This should fast-track project approval and fund disbursement," Xu said. He cautioned, however, that the effect of such policy expansion will only become more prominent next month and in the fourth quarter.
Firms appear to be anticipating "a boost to economic activity as local governments step up spending over the rest of the year," said Nguyen Hoang Nam, China economist at Capital Economics.
The non-manufacturing PMI, tracking construction and services, stayed unchanged at 49% in August. The sub-index for the construction industry fell 0.1 percentage point to 46.9%. Within services, wholesale, retail, and capital markets activity contracted.
A separate private survey is due Tuesday. The Reuters-polled estimate for the RatingDog manufacturing PMI, which tends to capture smaller, export-oriented firms, is 51.
