Chinese manufacturing activity shrinks in July - Caixin PMI

Investing.com -- Chinese manufacturing activity unexpectedly shrank in July, a private survey showed on Tuesday, highlighting the need for more stimulus measures from Beijing as the country’s biggest economic engines run out of steam.

The Caixin manufacturing purchasing managers’ index (PMI) read 49.2 for July, lower than forecasts of 50.3 and the prior month’s reading of 50.5. A reading below 50 entails contraction.

The survey showed that manufacturing output fell, while overall new business also declined. The reading also sank back into contraction territory after two months of marginal growth. 

The Caixin reading comes in line with the results of a government survey released on Monday, which also showed a contraction in manufacturing activity for July. 

But the Caixin reading differs from the official survey, in that it focuses more on smaller, private enterprises, as opposed to the bigger, state-run enterprises surveyed by the official survey.

Tuesday’s reading now shows that a manufacturing slowdown has dented all facets of China's key growth engine. The manufacturing sector is also struggling with a decline in overseas demand, amid worsening economic conditions across the globe. 

But the reading further highlights the need for more stimulus measures from Beijing, as a post-COVID economic recovery runs out of steam. Top Chinese officials have vowed to roll out more measures to spur local consumption, which is expected to elicit some economic growth later in the year.

“In terms of policies, guaranteeing employment, stabilizing expectations and increasing household income should still be the top priorities. At present, monetary policy only has limited effect on boosting supply. An expansionary fiscal policy that targets demand should be prioritized,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.

Chinese economic growth slowed sharply in the second quarter, recent data showed, as growth failed to pick up despite the relaxing of anti-COVID measures earlier this year. Beyond manufacturing, other facets of the Chinese economy also now appear to be slowing.