Key Points:
- China’s manufacturing PMI fell to 49.1 in August, marking a six-month low and indicating continued contraction.
- The non-manufacturing sector showed slight growth, with the PMI rising to 50.3.
- Beijing is shifting away from infrastructure spending and aiming to boost consumer spending, but further policy measures are needed.
- A significant decline in home prices and a lack of consumer confidence in the property market continue to hamper economic growth.
According to an official factory survey released on Saturday, China’s manufacturing sector slowed to a six-month low in August. This raises expectations that policymakers will shift their focus towards stimulating household consumption rather than infrastructure projects.
The official Purchasing Managers’ Index (PMI) fell for the fourth consecutive month to 49.1 in August, down from 49.4 in July. A PMI reading below 50 indicates contraction, signaling continued challenges for the sector. In contrast, the non-manufacturing PMI, which includes services and construction, showed a slight improvement, rising to 50.3 from 50.2, indicating modest growth in these areas.
The world’s second-largest economy has struggled to regain momentum in the year’s second half. In July, disappointing exports, prices, and bank lending figures reflected weakening demand. Analysts had hoped for a stronger rebound following China’s lifting of its strict COVID-19 restrictions in 2022, but the expected recovery has not materialized, leaving the $19 trillion economy on uncertain footing.
Last month, Beijing shifted from its traditional approach of heavy infrastructure spending towards policies that target consumer spending, a move broadly welcomed by analysts. However, experts caution that additional policy measures will be necessary to achieve the government’s annual growth target of around 5%.
Despite some positive signs, such as retail sales exceeding forecasts last month, specific details on how China plans to stimulate its 1.4 billion-strong consumer market have yet to be unveiled. Officials have committed to “focusing on boosting consumption to expand domestic demand,” but concrete actions remain limited.
The property sector continues to weigh heavily on consumer spending, as a prolonged slump has eroded confidence. With 70% of household wealth tied up in real estate, which once represented a quarter of the economy, consumers remain cautious about spending. Recent data showed China’s new home prices fell the fastest in nine years in July.
