In July, China's official manufacturing purchasing managers' index (PMI) fell to 49.2 from 50.3 in June, marking the first contraction since February and dropping below the critical 50-point threshold. This decline comes as the export surge that had previously bolstered the economy begins to fade, with economists having anticipated a stable PMI of 50.
The contraction ends a three-month expansion period that was largely driven by exporters rushing to ship goods ahead of anticipated U.S. tariff increases. The slowdown is particularly concerning as China's economy grew only 4.3% in the second quarter, the slowest rate in over three years, falling short of the government's target of 4.5% to 5%.
A survey by China Beige Book indicated that U.S.-bound shipments have decreased for the first time in several months, contributing to a broader deceleration in factory activity and job growth across all surveyed sectors. Retail sales also declined in July compared to both the previous month and the same period last year, particularly affecting travel and restaurant sectors.
The disappointing data is likely to heighten expectations for policy easing, although recent statements from Chinese leaders emphasized a focus on managing structural risks rather than immediate growth solutions