On July 31st, data from the National Bureau of Statistics revealed a notable cooling in China's economic activity for July. The Manufacturing PMI, Non-Manufacturing Business Activity Index, and Composite PMI Output Index all fell compared to the previous month, landing at 49.2%, 49.0%, and 49.3% respectively.

The decline of 1.1, 1.2, and 1.3 percentage points from June levels indicates a broad-based reduction in economic vitality. The Manufacturing PMI slipped to 49.2%, a downturn attributed to the high base effect from rapid growth in prior months and the onset of traditional off-seasons for certain manufacturing sectors.

Manufacturing Sector Experiences Contraction, High-Tech Growth Continues

Despite the overall slowdown, specific sub-sectors demonstrated resilience. Both the equipment manufacturing and high-tech manufacturing segments continued to expand at a robust pace, with PMI readings of 51.4% and 53.3%, respectively, significantly outperforming the broader manufacturing sector. These segments are acting as key drivers, steering the industry towards higher quality and innovation. In contrast, the consumer goods and high-energy-consuming sectors saw their PMI figures fall to 47.8% and 47.0%, reflecting declining business conditions.

Production and demand dynamics showed mixed results across different industries. The overall production sub-index fell to 49.9%, while the new orders index dropped more sharply to 48.5%. However, sectors like general equipment and computer/communication electronics maintained strong activity, with both indices exceeding 53.0%. Conversely, industries such as non-metallic minerals, ferrous metal smelting, and automobiles experienced weak supply and demand, with sub-indices remaining below the 50-point threshold.

Price pressures have been easing for four consecutive months. The index for major raw material purchase prices stood at 53.2%, while the factory gate price index slipped to 47.8%. This trend is linked to recent volatility in global commodity prices. Notably, price indices for the non-ferrous metal smelting and processing industry have fallen below 45.0%. This price instability has dampened corporate purchasing intentions, causing the procurement volume index to drop to 49.4%.

Looking ahead, market sentiment remains stable. The production and business activity expectation index for the manufacturing sector held steady at 54.1%, indicating cautious optimism among businesses. The food, beverage, railway, ship, and aerospace equipment sectors are particularly confident, with their expectation indices rising above 60.0%.

Non-Manufacturing Activity Weakens, Culture and Tourism Show Vigor

The Non-Manufacturing Business Activity Index fell to 49.0% in July, marking a 1.2 percentage point decline from the previous month. Within this, the services sub-index dropped to 49.3%, reflecting reduced market activity. A notable exception was the culture and tourism sector, which received a boost from summer holiday travel. This led to a significant rebound in business activity indices for air transport, accommodation, and cultural/sports/entertainment industries. Conversely, wholesale and monetary financial services saw sharp declines, contributing heavily to the overall services slowdown. The capital market services and real estate sectors continued to operate below the 50-point mark. The services business activity expectation index remained unchanged at 56.0%, suggesting stable confidence among service providers.

The construction sector faced headwinds from adverse weather, including high temperatures, heavy rain, and flooding in several regions. These factors slowed construction progress, pushing its business activity index down 2.0 percentage points to 47.0%. Nonetheless, the sector's future outlook improved slightly, with its expectation index rising 0.7 points to 51.8%.

Composite PMI Output Index Dips Below Threshold

The Composite PMI Output Index, which combines manufacturing and non-manufacturing data, stood at 49.3% in July. This represents a 1.3 percentage point decrease from June and signals a general slowdown in the pace of enterprise production and operations across the country. The index is composed of a 49.9% reading for the manufacturing production sub-index and a 49.0% reading for the non-manufacturing business activity index.