China's factory activity decreased for five consecutive months in August

September 04, 2023: In August, China’s factory activity decreased for five consecutive months, while non-manufacturing activity hit a new low for the year. This shows signs that the slowdown in the world’s second-largest economy may not yet have bottomed out.

According to data from the National Bureau of Statistics released on Thursday, the official manufacturing purchasing managers’ index grew barely to 49.7 in August from 49.3 in July. This was better than the median forecast of 49.4 in a poll.

A PMI reading over 50 shows an expansion in activity, while a reading less than that level points to a contraction.

“The survey results show that insufficient market demand is still the main problem that companies are facing, and the foundation for the recovery and development of the manufacturing industry needs to be further consolidated,” Zhao Qinghe, a senior NBS official, stated.

While there were some green shoots in the sub-indexes for China’s manufacturing PMI, with four of five registering expansion, the non-manufacturing PMI, which covers the service sectors, fell to 51.0 in August. That compares with 51.5 in July and 53.2 in June.

There are growing tensions that the Chinese economy may not meet Beijing’s stated 5% growth target this year amid a festering crisis of confidence in the country’s property sector, plagued by credit woes and weak sales.

Beijing has resorted to a targeted approach in bolstering the economy, ranging from measures to boost lending and stock investment to more tangible steps to increase housing demand.

Underscoring the uneven recovery in the Chinese economy, Thursday’s data release showed manufacturing-related sub-indexes for production and new orders hitting five-month highs. In contrast, the new orders sub-index for China’s non-manufacturing sectors fell to 47.6.

The new order index for the construction industry was 48.5, an increase from July when construction starts were hampered by extreme weather. The new order index of the service industry was 47.4, a decrease of 1.0 percentage points from the previous month.

Input prices for manufacturing and non-manufacturing sectors increased in August, leading to higher output prices, suggesting inflationary pressures may be rebounding.