China's private Caixin manufacturing PMI drops to 49.8 in July

China's private Caixin Manufacturing Purchasing Managers' Index (PMI) dropped to 49.8 in July, down 2 points from a month ago, Caixin data revealed on Thursday.

A reading above 50 indicates expansion in the manufacturing sector, while a reading below 50 points to contraction. The reading followed China's official factory activity data released by the National Bureau of Statistics (NBS) on Wednesday, which came in at 49.4 for July.

Wang Zhe, a senior economist at Caixin, said that in July, the manufacturing sector has generally stabilized but domestic demand declined, the job market contracted, and business purchases and raw material stocks decreased. Despite these pressures, market optimism witnessed a slight improvement.

Caixin Manufacturing PMI falls below the expansion threshold for the first time since November 2023. 

In July, manufacturing output expansion slowed to its lowest pace in nine months, attributed to the first drop in new orders in a year. According to some companies, subdued demand conditions and reduced client budgets caused the latest decline in manufacturing activity. While export orders continued to rise, the growth rate slowed to a modest pace from June, according to the Caixin report.

Sub-sector data revealed that new orders declined in the segments of investment and intermediate goods, while the consumer goods sector saw slight expansion in July. Purchasing activity fell for the first time since October 2023, leading to a depletion of stocks as manufacturers reduced purchases in response to falling new orders.

On the other hand, stocks of completed goods rose again, partly due to shipping delays. 

In July, market prices eased to a four-month low, prompting Chinese manufacturers to cut selling prices amid heightened competition. Average selling prices fell for the first time since May as Chinese manufacturers cut prices to boost sales.

Despite the reduction in new orders, Chinese firms were largely optimistic that business prospects and the launch of new products would drive sales in the year ahead, said the report.

The Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting on July 30 to analyze the current economic situation, make arrangements for economic work in the second half of the year, and review "Certain Provisions on Rectifying Pointless Formalities to Reduce Burdens on the Grassroots", Xinhua reported on Wednesday.

It was noted at the meeting that the unfavorable conditions brought about by changes in the external environment have increased. There is a lack of sustained domestic demand, economic growth shows signs of disparities, and there are still risks and hidden dangers in some segments, as well as difficulties in the transformation from old growth drivers to new ones. 

"Facing these challenges, on the one hand, we must have a strong sense of managing risks and prepare for worst-case scenarios to proactively respond to challenges. On the other hand, we must maintain our firm strategic resolve, have greater confidence in development, and be optimistic about the bright prospects of the Chinese economy," according to Xinhua.