China’s manufacturing activity contracts for second consecutive month in August

10:24

By: Azzat Manal

China’s manufacturing activity contracts for second consecutive month in August

China’s manufacturing sector remained in contraction territory in August, marking the second consecutive month of declining activity and highlighting continued challenges facing the world’s second-largest economy.

Official data released by the National Bureau of Statistics showed that the manufacturing Purchasing Managers’ Index (PMI) rose to 49.8 in August, up from 49.2 in July. Although the improvement suggests some stabilization, the index remained below the key 50-point threshold that separates expansion from contraction.

The August reading was slightly better than the 49.5 expected by economists surveyed by Bloomberg. Nevertheless, analysts cautioned against interpreting the increase as evidence of a broad economic recovery.

Zhiwei Zhang, an economist at Pinpoint Asset Management, noted that the manufacturing PMI had improved from the previous month but remained below 50. He argued that it was still too early to conclude that China's economy had entered a sustained recovery.

The increase in input and output price indicators also provided some support to manufacturing companies, particularly those operating further upstream in supply chains. However, the rise in prices appeared to be driven more by supply conditions than by stronger consumer and industrial demand.

Activity outside manufacturing also remained weak. The official non-manufacturing PMI, which covers services and construction, stood at 49.0 in August, keeping the indicator below the expansion threshold for a second month.

China's industrial sector continues to operate against a backdrop of considerable uncertainty. Higher energy costs, partly linked to instability in the Middle East, have increased pressure on manufacturers and complicated the outlook for businesses.

At the same time, strong exports have provided an important source of support for the Chinese economy. Overseas demand for electronics, advanced components and products connected to the rapid development of artificial intelligence has helped sustain China's external trade.

Domestic demand, however, remains considerably weaker. The prolonged property-sector crisis continues to weigh on household confidence, investment and consumption, limiting the strength of the broader economic recovery.

The latest PMI figures therefore point to an economy showing signs of resilience but still facing significant structural and external pressures. While the improvement in manufacturing activity is encouraging, continued weakness in both manufacturing and non-manufacturing indicators suggests that stronger domestic demand will be essential for a more durable recovery.