China: Industry Remains Under Pressure Despite Slight Improvement in Manufacturing Sector

08:18

The Chinese industry is still struggling to regain sustainable momentum. The manufacturing sector remained in contraction territory in August for the second consecutive month, despite a rise in its activity index compared to July. With weak domestic demand, a real estate crisis, and international uncertainties, signs of a genuine recovery remain hard to discern.

Manufacturing Sector Stays Below 50

The main official indicator of Chinese manufacturing activity remains in the red. The manufacturing PMI, published on Monday by the National Bureau of Statistics (NBS), stood at 49.8 in August, up from 49.2 the previous month.

The index thus remains below the threshold of 50, which separates expansion from contraction in activity. Despite this situation, the increase recorded in August represents an improvement compared to July and slightly exceeds market expectations, which were for an index of 49.5.

However, this progress is not enough to reverse the trend. August marks the second consecutive month of contraction for the manufacturing sector.

An Improvement That Does Not Yet Signal Recovery

According to Zhiwei Zhang, an economist at Pinpoint Asset Management, the rise in the manufacturing index compared to July is a positive signal, but it should be interpreted with caution.

The two main indicators remain below the symbolic threshold of 50, making any conclusion about a solid economic restart premature.

The situation is further complicated as some industrial prices have risen. The increase in raw material costs and producer prices may have supported certain upstream companies in the industrial chain.

However, this development seems more linked to supply conditions than to a genuine resurgence in demand. In other words, the rise in prices does not necessarily indicate a return of consumption or orders.

Services and Construction Also Remain Fragile

The difficulties are not limited to factories. The non-manufacturing PMI, which covers services and construction, also remained below the growth threshold.

The index stood at 49.0 in August, down from 49.4 in July. This decline confirms the challenges faced by a significant part of the Chinese economy, as domestic demand still struggles to regain sufficient strength.

The contrast between the weakness of the domestic market and certain export performances remains particularly striking.

Exports Still Provide Valuable Support

Nevertheless, the Chinese industry can rely on a relatively strong external engine. Exports continue to benefit from sustained demand in several technological sectors.

Electronics and components for artificial intelligence-related applications are among the activities that contribute to supporting Chinese sales abroad.

This dynamic allows some manufacturing companies to partially compensate for the lack of vigor in the domestic market. However, it is not enough on its own to guarantee a generalized economic recovery.

Real Estate Continues to Weigh on Demand

The main weakness remains linked to domestic demand. The Chinese real estate sector is still going through a prolonged crisis, with consequences that extend far beyond the housing market.

The fragility of real estate affects household confidence, investment, and part of economic activity. It also complicates efforts to rebalance growth towards domestic consumption.

As long as this sector does not show more convincing signs of stabilization, the Chinese recovery will remain exposed to significant risks.

Energy Adds New Uncertainty

Industrial operators must also contend with an unstable international environment. Tensions in the Middle East have notably contributed to fueling concerns about energy costs.

For companies heavily dependent on raw materials and energy, this situation can reduce margins and complicate investment decisions.

China thus faces a set of contradictory factors: strong exports and slightly better industrial activity on one side, but weakened domestic demand and persistent external risks on the other.

An Economy Still Seeking New Momentum

The August figures therefore paint a picture of an economy that is resilient but still struggles to regain sufficiently broad momentum.

The rebound in the manufacturing PMI is encouraging, but its maintenance below 50 serves as a reminder that industrial production remains under pressure. The persistent weakness of the non-manufacturing sector also raises questions.

For Beijing, the challenge now is to transform the support provided by exports and certain technological sectors into a more balanced recovery, also driven by domestic demand.

For now, the available data suggest a more fragile stabilization than a true economic restart.