China's manufacturing activity contracts in July for the first time in nine months

China’s manufacturing: China's manufacturing activity contracted in July for the first time in nine months as new orders declined, according to a private sector survey released on Thursday. This downturn signals potential challenges for the country's growth momentum in the second half of 2024.

The Caixin/S&P Global manufacturing PMI dropped to 49.8 in July from 51.8 in June, marking its lowest reading since October last year and falling short of analysts' forecasts of 51.5.

This reading, which predominantly covers smaller, export-oriented firms, aligns with an official PMI survey from Wednesday showing manufacturing activity fell to a five-month low.

The Caixin survey indicated that manufacturing output expansion was the slowest in nine months, largely due to the first decline in new orders in a year. Participants attributed the decline to subdued demand and client budget reductions.

Sub-sector data revealed that the renewed drop in new orders mainly affected investment and intermediate goods, while the consumer goods sector experienced slight growth in July.

In response to the weak demand, China announced last week that approximately 150 billion yuan ($20.74 billion) of a 1 trillion yuan ultra-long special treasury bonds issuance would subsidise the replacement of old appliances, cars, electronic bicycles, and other goods to boost consumption.

Despite overall tepid new orders, export orders continued to grow in July, although the growth rate slightly slowed compared to June.

"The most prominent issues are still insufficient effective domestic demand and weak market optimism," said Wang Zhe, economist at Caixin Insight Group, calling for policy efforts to stabilise growth.

China's economy, the world's second-largest, missed growth forecasts in the second quarter and faces deflationary pressures, with retail sales and imports significantly underperforming industrial output and exports.

China's foreign trade growth in the second half of the year faces numerous challenges, including high geopolitical risks, supply chain disruptions due to protectionism, shipping congestion, and escalating shipping fees, said Lv Daliang, customs spokesperson, on Tuesday.

The Caixin survey showed a decline in purchasing activity for the first time since October 2023, leading to a renewed depletion of purchase stocks. However, stocks of finished goods rose again, partially due to delays in outbound shipments.

Some Chinese manufacturers lowered selling prices to support sales amid increased competition, while input cost inflation eased.

Employment remained stable, with the rate of job losses unchanged from June, continuing in contractionary territory for 11 months.

Producers remained optimistic about future output, with the level of optimism improving from June.

(With Reuters inputs)