Saturday, 14 December 2024
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ChinaEconomy

China’s Factory Activity Contracts Again, Signaling Economic Concerns

  • China‘s manufacturing PMI remained at 49.5 for the second consecutive month in June.
  • New orders and export orders continue to show signs of weakness.
  • Construction and services sectors also see a decline in activity.

China’s factory activity saw no improvement in June, with the official manufacturing purchasing manager index (PMI) staying at 49.5, the same as in May, indicating continued contraction.

Beyond manufacturing, the non-manufacturing index, which includes construction and services, also experienced a decline, falling to 50.5 from 51.1 in May. This suggests slowing growth in these critical sectors, further complicating China’s economic landscape.

Persistent Contraction in China’s Manufacturing Sector Raises Alarm

China’s manufacturing sector continues to face significant headwinds, as evidenced by the official manufacturing PMI holding steady at 49.5 for the second month in a row. This persistent contraction signals ongoing struggles within the sector, particularly with weakening demand and stagnant new export orders. Despite hopes for a manufacturing-led recovery, these figures highlight the difficulties in achieving robust economic growth.

The construction and services sectors are also showing signs of stress, with the non-manufacturing index dropping to 50.5 in June from 51.1 in May. This decrease indicates a slowdown in these vital areas, raising concerns about the broader economic recovery. The decline in the construction index, which fell to its lowest level since July 2023, suggests that infrastructure spending, a key support mechanism, is losing momentum.

Compounding these internal challenges are external trade tensions. The US and EU have raised alarms over a surge in inexpensive Chinese exports, which they claim are unfairly subsidized by Beijing. This has led to threats of tariffs on Chinese goods, particularly in sectors like electric vehicles, further straining China’s export-driven growth model.

In response to these multifaceted challenges, Chinese policymakers may need to pivot towards more substantial fiscal interventions. With constraints on monetary easing due to currency pressures, enhancing fiscal support could be crucial in stabilizing the economy and meeting the annual growth target of around 5%.

The sustained contraction in China’s manufacturing and broader economic challenges suggest that more aggressive fiscal measures will be essential to meet growth targets and stabilize the economy amid internal and external pressures.

“The foundation for sustained recovery and improvement still needs to be consolidated.”

– Zhao Qinghe, NBS Analyst

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