China’s factory activity unexpectedly slipped into contraction in July, pressured by shrinking new orders that reinforced concerns over slowing economic growth, weak demand at home and elevated production costs. The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 50.3 in June, hitting a five-month low.
Activities in the manufacturing sector contracted in Jul-26 as the NBS Manufacturing PMI dropped to 49.2 (Jun-26: 50.3), a steeper fall than 50.0 anticipated by the market consensus. The reading marks the first decline since Feb-26 as output and new orders decreeased last month. Companies also reduced purchasing activity and continued to slash hirings, albeit at slower pace. Cost pressures continued to inflate but the rise in input prices was slower than Jun-26. Output prices, on the contrary, fell sharper in Jul-26.
Activities in the non-manufacturing sectors also weakened in Jul-26, as the NBS Non-manufacturing PMI declined to 49.0 (Jun-26: 50.2). The reading was below market forecast of 50.0 and marking the first contraction after 2 months of growth. Business activity declined in the services sector as well as the constitution industry. New orders in both sectors also fell sharper in Jul-26. Although companies indicated improved sentiment on the future activities, employment and prices also fell sharper last month.
MBSB noted that the decline in both PMIs signals renewed concerns over a slowdown in China’s economy, with the NBS General PMI falling to 49.3 in Jul-26 (Jun-26: 50.6). To some extent, the deterioration can be attributed to the seasonal slowdown and disruptions caused by extreme weather events. Nevertheless, with the General PMI weakening to its lowest level since late 2022, stronger policy support may be needed to sustain domestic demand and broader economic activity.
