China factory activity shrinks for third month in setback

China factory activity shrinks for third month in setback

China’s factory activity contracted for a third straight month in July, leaving the economy on a weak trajectory that’s frustrating Beijing’s efforts to sustain faster growth.

The official manufacturing purchasing managers’ index hit 49.4, compared with 49.5 in June, the National Bureau of Statistics said on Wednesday. The median forecast of economists surveyed by Bloomberg was 49.4. It’s been below the 50-mark separating growth from contraction for all but three months since April 2023.

Analysts from Goldman Sachs Group Inc. and Bank of America Corp. expected China’s manufacturing downturn to drag on, in part due to adverse weather conditions that weighed on construction. Goldman also pointed to lower commodity prices and steel production in July that signaled weaker factory activity.

The non-manufacturing measure of activity in construction and services fell to 50.2, the statistics office said. That compares with a forecast of 50.3, and a June reading of 50.5.

China’s economy has performed unevenly this year, with manufacturing at times a bright spot while consumption has been weighed down by a prolonged real estate crisis.

China’s trade surplus hit a record high last month as exports surged and imports unexpectedly declined. The growing imbalance has spooked China’s trade partners.

The US and European Union — two of China’s biggest export markets — accuse Beijing of building excess capacity in its industries through state subsidies. They’re erecting new trade barriers that will hold back sales of key products like electric vehicles, and threatening even more.

Chinese officials, however, argue China’s manufacturing capacity is helping the world fight climate change and contain inflation.

“For decades, China has been a force of disinflation for the world through its supply of manufactured products with good value for money,” Vice Finance Minister Liao Min said in an exclusive interview with Bloomberg last week.