An employee operates a spinning machine at a textile factory on May 26, 2022 in China. China’s factory activity fell unexpectedly in July as fresh virus flare-ups and a darkening global outlook weighed on demand.
Zhu Haipeng | Visual China Group | Getty Images
China̵[ads1]7;s factory activity fell unexpectedly in July after rebounding from Covid-19 shutdowns the previous month, as fresh virus flare-ups and a darkening global outlook weighed on 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 Bureau of Statistics (NBS) said.
Analysts polled by Reuters had expected it to improve to 50.4.
“The level of economic prosperity in China has fallen, the basis for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the bureau’s website.
Continued declines in the oil, coal and metal smelting industries were one of the main factors pulling down the manufacturing PMI in July, he said.
The reading was the lowest in three months, with sub-indices for manufacturing, new orders and employment all falling.
Chinese manufacturers continue to struggle with high commodity prices, which squeeze profit margins, as the export outlook remains clouded by fears of a global recession.
Weak demand has limited 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 greater challenges than expected, as the recovery is slow and fragile.”
The official July non-manufacturing PMI fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.
China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled that its strict zero-Covid policy would remain a top priority.
Politicians 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 will roll out massive stimulus measures, as they have often done in previous downturns.
Capital Economics says policy restraint, along with the constant threat of more shutdowns and weak consumer confidence, is likely to make China’s economic recovery more protracted.
After an upswing in June, the recovery in the world’s second-largest economy has faltered as the Covid-19 outbreak led to a tightening of activity in some cities, while the once-mighty property market lurches from crisis to crisis.
Chinese manufacturers also continue to struggle with high commodity prices, which squeeze profit margins, and export prospects are clouded by fears of a global recession.
China’s southern megacity Shenzhen has vowed to “mobilize all resources” to curb a slow-spreading Covid outbreak, ordering strict implementation of testing and temperature checks, and lockdowns of Covid-affected buildings.
The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas tightened curbs this month to combat new outbreaks.
According to World Economics, the shutdown measures had some impact on 41% of Chinese companies in July, although the industry’s business confidence index rose significantly from 50.2 in June to 51.7 in July.