China's Economy Suffers Another Blow as July Manufacturing PMIs Decline

China's economic woes deepened in July, as both official and private manufacturing Purchasing Managers' Indexes (PMI) fell, signaling an accelerating slowdown. The private PMI, surveyed by RatingDog, dropped to 50.9 from 51.7 in June, while the official PMI fell to 49.2 from 50.3, dipping below the 50-point threshold that separates expansion from contraction.

RatingDog founder Yao Yu noted that while manufacturing activity remains in expansion territory, its growth rate is slowing. He highlighted concerns over reduced purchasing activity and persistent inventory buildup. This follows a disappointing second quarter, where China's GDP grew 4.3% year-on-year, missing market expectations and marking the slowest growth in over three years.

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Manufacturing PMI is expected to remain in the expansion range in the near future, but the growth rate will continue to slow down. Reduced purchasing activity and persistent inventory buildup are worth noting.

Analysts point to persistently weak domestic demand as a major drag on the economy. "The sharp cooling in factory activity in July is not just seasonal," said Xing Zhaopeng, senior China strategist at ANZ. "Significantly weakened domestic demand and local government finances are likely the biggest drags, and we will see weak growth momentum in the coming months."

In response, the Communist Party's Politburo acknowledged "economic difficulties and challenges" in a July 30 meeting. The leadership vowed to accelerate fiscal spending and boost domestic demand with a more proactive fiscal policy, as pressure mounts on Beijing to stabilize the economy amid falling property prices, sluggish investment, and weak retail sales.

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The sharp cooling in factory activity in July is not just seasonal. Significantly weakened domestic demand and local government finances are likely the biggest drags, and we will see weak growth momentum in the coming months.