China’s manufacturing sector contracted for a second consecutive month in August, although the decline slowed compared with July. At the same time, weakness in the services sector highlighted the fragile nature of China’s economic recovery.
China Manufacturing PMI Improves in August
China’s official manufacturing Purchasing Managers’ Index (PMI) rose to 49.8 in August, up from 49.2 in July, according to data from the National Bureau of Statistics.
The reading also came in above market expectations of 49.5.
However, the manufacturing sector remained in contraction territory. A PMI reading below 50 indicates declining activity, while a figure above 50 signals expansion.
New Orders Return to Growth
There were some encouraging signs within the August data.
The new orders index climbed sharply to 50.6 from 48.6, moving back into expansion territory. Meanwhile, the new export orders index improved to 50.1 from 49.6, also signaling renewed growth.
The improvement suggests that demand conditions may be starting to stabilize despite continued pressure on the broader manufacturing sector.
Economic Momentum Could Strengthen
Analysts at Capital Economics expect China’s economic momentum to improve during the remainder of the year.
They noted that disruptions caused by typhoons should gradually fade, while local governments are expected to accelerate spending that has already been included in their budgets.
Business expectations also remained relatively positive. Although PMI measures of future expectations edged slightly lower, they stayed firmly above the expansion threshold.
This suggests that Chinese companies remain optimistic about future production, partly because increased government spending could provide additional support to economic activity later in the year.
China Services Activity Remains Under Pressure
Weakness was not limited to manufacturing.
China’s official non-manufacturing PMI stood at 49.0 in August, unchanged from July and below expectations of 49.5.
The reading marked a second consecutive month of contraction in the non-manufacturing sector, which includes services and construction.
Meanwhile, China’s composite PMI, which combines manufacturing and non-manufacturing activity, edged higher to 49.5 from 49.3.
Despite the improvement, the overall reading remained below 50, indicating continued weakness across the broader economy.
China’s Economy Faces Ongoing Challenges
China’s economic recovery continues to face several obstacles.
Industrial production, retail sales and investment all lost momentum in July. Weak domestic demand and the prolonged downturn in the country’s property market have continued to weigh on economic activity.
These pressures have increased expectations that Beijing may need to provide further policy support to strengthen growth.
Beijing Steps Up Economic Support
Chinese authorities have already introduced additional measures to support the economy.
Among them is an 800 billion yuan financing initiative designed to help fund local government projects and stimulate investment.
However, the economic impact of these measures may not appear immediately, as implementation and the deployment of funds are expected to take time.
For now, the latest PMI figures suggest that China’s manufacturing sector is moving closer to stabilization, but persistent weakness in services and domestic demand means the country’s economic recovery remains fragile.
