China’s factory activity contracted unexpectedly in July, ending a four-month streak of expansion. The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 50.3 in June, according to the National Bureau of Statistics.
The reading missed economists’ median forecast of 50.0 and marked the weakest performance since February. The index dropped below the 50 threshold that separates expansion from contraction, hitting a five-month low.
Broader economic indicators also weakened. The non-manufacturing PMI, which covers services and construction, contracted to 49 in July from 50.2 in June. The composite PMI came in at 49.3, down from 50.6 in the previous month.
Export momentum fades
Subindexes pointed to softening demand. The gauge for new orders sank to 48.5 in July from 51.2 in June, while new export orders contracted to 49.6 from 50.1. This shift follows a period where strong manufacturing and goods exports helped cushion the economy from external shocks and offset weaknesses in the property market.
The export rush that powered the second-quarter rebound began to unwind in July. In June, shipments to the United States rose 14%, helping China’s overall exports surge 27%, the fastest pace in nearly five years, as businesses frontloaded orders ahead of expected higher American tariffs.
However, U.S.-bound shipments from China fell outright for the first time in several months, according to a China Beige Book survey. Manufacturers had braced for additional levies following the expiration of a 10% broad-based U.S. duty on July 24 related to President Donald Trump's Section 301 probes.
Policymakers pledge support
The data release came a day after China’s top policymakers held their mid-year meeting. The Politburo acknowledged “difficulties and challenges facing the economy” and pledged to attach great importance to these issues.
Officials pledged to accelerate fiscal spending and roll out incremental policies to shore up growth in the second half. They stated the government would leverage existing policies and introduce new measures in a timely manner, though no specific new measures were unveiled during the meeting.
The policy response follows slowing growth figures. China’s economy expanded 4.3% in the second quarter from a year earlier, down from 5.0% in the first quarter. This was the slowest pace in more than three years and missed the lower end of the full-year target range of 4.5% to 5%.
Domestic consumption also showed signs of weakness. According to the China Beige Book, retail sales fell in July from both the prior month and a year earlier, with the travel and restaurant sectors experiencing a sharp on-year downturn.
The survey also found that factory activity decelerated in July, with manufacturing posting its worst performance on employment. Job growth deteriorated across all sectors surveyed compared to a year earlier.