China’s Factory Activity Contracts as Domestic Demand Weakens

China’s factory activity unexpectedly contracted in July, ending a four-month run of growth as domestic orders weakened and typhoons disrupted production.

The official manufacturing Purchasing Managers’ Index (PMI) fell to 49.2, down from 50.3 in June. A reading below 50 indicates contraction.

One of the biggest concerns was domestic demand, with the new orders index falling to 48.5, its lowest level in more than three years. Export activity also began to soften after a strong period of front-loaded shipments ahead of expected US tariff increases.

The weakness was not limited to manufacturing. Construction activity fell to a record low, while the services sector also slowed, pushing the overall composite PMI to its lowest level since 2022.

China’s economy grew 4.3% year-on-year in the second quarter, its slowest quarterly growth in more than three years, adding to pressure on policymakers to support domestic demand.

For the freight and trade sector, softer factory activity and weaker domestic demand are worth watching. China remains a major manufacturing and export hub, so changes in production and order volumes can flow through to shipping demand, cargo volumes and supply chain activity.

The July figures don’t necessarily signal a major downturn, with business expectations for future output remaining relatively positive. However, they do show the challenges facing the Chinese economy as some of the momentum from earlier front-loaded exports begins to fade.

Source article: China's factory activity unexpectedly contracts in July