China’s factory activity shrinks for a fifth straight month in August

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People walk through a gate in the Forbidden City in Beijing, capital of China, March 27, 2023.

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China’s factory activity in August shrank for a fifth straight month, while non-manufacturing activity hit a new low for the year — signs that the slowdown in the world’s second-largest economy may not yet have bottomed out.

The official manufacturing purchasing managers’ index rose slightly to 49.7 in August from 49.3 in July, according to data from the National Bureau of Statistics released Thursday. This was better than the median forecast for 49.4 in a Reuters poll.

A PMI reading above 50 indicates expansion in activity, while a reading below that level points to a contraction.

“The survey results show that insufficient market demand is still the main problem that enterprises 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, said in a statement.

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 concerns 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 that’s plagued by credit woes and weak sales.

Beijing has resorted to a rather targeted approach in bolstering the economy, ranging from measures to boost lending and stocks investment, to more tangible measures aimed at boosting 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, while 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 both manufacturing and non-manufacturing sectors increased in August, translating to higher output prices — which suggests inflationary pressures may be rebounding. Recent data had pointed to disinflation or deflationary trends.

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