China’s economic recovery not ‘turning the corner’, but hope endures that Beijing will put money and policy where its mouth is

China’s official manufacturing purchasing managers’ index (PMI) rose to 49.3 in July from 49 in June, while the non-manufacturing gauge fell to 51.5 from 53.2

China’s economic recovery has been hit by record youth unemployment, a property downturn and disappointing retail sales, industrial production and investment figures

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China’s official non-manufacturing purchasing managers’ index (PMI) fell to 51.5 in July from 53.2 in June. Photo: AP

Published: 9:47am, 31 Jul 2023Updated: 2:04pm, 31 Jul 2023

The onus is on policymakers to “pull something out of the bag” to shore up China’s slowing economy, analysts said after learning that factory activity remained in contraction for a fourth straight month in July, while expansion in both the services and construction sectors slowed.

China’s official manufacturing purchasing managers’ index (PMI) rose to 49.3 in July, up from 49 in June, but remained in contraction for a fourth straight month, the National Bureau of Statistics (NBS) said on Monday. The 50-mark separates growth from contraction on a monthly basis.

The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, also fell to 51.5 in July from 53.2 in June.

Policy support should drive a turnaround later this year. But with officials taking a restrained approach to stimulus, any reacceleration in growth is likely to be modest

Capital Economics

“The PMI surveys suggest that China’s economic recovery continued to lose momentum in July. Downward pressure on manufacturing eased slightly. But this was more than outweighed by a sharp deceleration in construction and cooling services activity,” said analysts at Capital Economics.

“Policy support should drive a turnaround later this year. But with officials taking a restrained approach to stimulus, any reacceleration in growth is likely to be modest.”

Last week, the Politburo – the Communist Party’s prime decision-making body – listed key tasks for the second half of the year to expand domestic demand, improve confidence and prevent risks after the country’s sequential economic growth slowed to 0.8 per cent in the second quarter.

“[The data] puts more onus on policymakers to move swiftly to provide much-needed policy support, echoing the recent pledge made in the Politburo meeting last week,” said Erin Xin, Greater China economist at HSBC.