Summary of Key Points
In July, all three major PMI indices in China (manufacturing, non-manufacturing, and composite) fell below the 50% threshold, indicating a decline in overall economic activity. However, there are some structural positives: high-tech manufacturing continues to expand, the culture and tourism industry has seen a rebound due to summer consumption, and businesses remain confident about the future.
Detailed Analysis
1. Overall Economic Activity Decline: All Three Indices Have Dropped
The manufacturing PMI (49.2%), non-manufacturing business activity index (49.0%), and composite PMI (49.3%) all decreased by more than one percentage point compared to the previous month, all below 50%. In simple terms, there are fewer companies expanding than contracting, meaning economic activity has slowed down compared to June.
There are two main reasons for this:
1. Manufacturing growth was too rapid earlier on, so now the base number is higher, making the current decline more noticeable.
2. Some industries have entered their traditional off-seasons (for example, some factories undergo maintenance during summer, leading to a decrease in orders).
2. Diversification within the Manufacturing Sector: High-Tech Leads, Traditional Industries Face Challenges
The manufacturing sector is not uniform; some industries are still growing rapidly, while others are struggling:
- Positive Trends: High-tech and equipment manufacturing sectors are performing well, with PMI scores of 53.3% (well above 50%) and 51.4%, respectively. Industries such as general equipment and computer communication electronics are seeing strong production and order volumes, indicating continued growth in high-end manufacturing.
- Challenging Areas: The consumer goods and energy-intensive industries are performing poorly, with PMI scores of 47.8% and 47.0%, respectively. Sectors like non-metallic minerals (cement), ferrous metals (steel), and automobiles are experiencing weak production and order volumes.
3. Continuous Price Declines: Weakening Purchasing Intentions by Businesses
Prices for both raw materials and finished products have been falling:
- The main raw material purchase price index is at 53.2% (still rising, but down for four consecutive months), and the ex-factory price index is at 47.8% (also declining).
- With significant price fluctuations, businesses are more cautious about purchasing raw materials, resulting in a purchase volume index of 49.4%, indicating more restrained buying behavior.
4. Non-Manufacturing Sector: Summer Boost for Culture and Tourism, Weakness in Construction and Certain Services
Within the non-manufacturing sector, there are differences between services and construction:
- Cultural and Tourism Industry Revival: Summer travel has led to increased business activity in industries such as air transportation, accommodation, and cultural entertainment. However, sectors like wholesale and monetary financial services have seen significant declines, dragging down the overall service industry performance.
- Construction Sector Slows Down: Due to high temperatures, heavy rains, and floods, construction progress has slowed, with a business activity index of 47.0% (down 2 percentage points). Despite this, businesses' confidence in the future has increased slightly (the forecast index rose by 0.7 percentage points), possibly indicating recovery after the disasters.
5. Stable Market Expectations: Businesses Remain Optimistic
Despite the overall decline in economic activity, businesses are still confident about the future:
- The manufacturing production and business expectations index is at 54.1% (above 50%), with sectors like food and beverages, as well as railway, shipbuilding, and aerospace equipment, showing even higher expectations (over 60%).
- The service industry expectations index is at 56.0% (the same as last month), and the construction sector's expectations have also increased, indicating overall optimism.
In Summary
The economy has cooled down slightly in July, but there are still positive trends in high-end manufacturing and the culture and tourism industries. Business confidence remains strong, and policy intervention may be needed to support growth in the future.