China's factory activity weakens in July

BEIJING • Chinese factory activity weakened last month to its lowest level since the start of the pandemic, as manufacturing was impacted by slowing demand, weak exports and extreme weather.

The Purchasing Managers' Index (PMI), a key gauge of manufacturing activity in the world's second-largest economy, fell to 50.4 last month from June's 50.9, the National Bureau of Statistics (NBS) said yesterday.

The reading appeared to be levelling out between April and June, and July shows the first marked decline, making it the lowest PMI figure since February last year, analysts said.

While the figure was worse than many forecasts, it was still above the 50-point mark. A PMI reading of over 50 indicates expansion, while one below that figure suggests contraction.

China's fragile economic recovery is being threatened by a recent resurgence of the Delta variant of the coronavirus that is threatening to dampen holiday consumption over the summer.

"On the whole, China's economy continues to maintain expansion momentum, but the pace has slowed down," said NBS senior statistician Zhao Qinghe.

"In July, some companies entered the equipment maintenance period, which in addition to the impact of extreme weather such as localised high temperatures, floods and natural disasters, (caused) relatively weakened manufacturing growth compared with June."

Although Mr Zhao did not refer to specific extreme weather events, flooding in central Henan province caused more than 70 deaths and billions of yuan worth of damage last month. Henan is home to key Foxconn plants that manufacture Apple iPhones.

Overall, export and import indices dropped last month, after a major port closure in the first three weeks of June stifled international trade at a key point in the global shipping network.

"The most alarming signal is the new export order index, which (at 47.7 per cent) is at the lowest level since July last year," said Mr Zhang Zhiwei, chief economist at Pinpoint Asset Management, in a note.

"Exports have been a main growth driver this year. This PMI data release makes me even more cautious about growth outlook in H2," he added, referring to the second half of the year.

China's non-manufacturing PMI also slightly slowed by 0.2 percentage point to 53.2 last month, although it was still showing growth.

However, the service industry recovered slightly, with expanded sectors including aviation, catering and accommodation.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Sunday Times on August 01, 2021, with the headline 'China's factory activity weakens in July'. Subscribe