China China China

China Update: July manufacturing PMI slid back into contraction

Macro 7 minutes to read
Redmond Wong

Market Strategist, Greater China

Summary:  China’s official NBS manufacturing PMI released on Sunday July 31 surprised to the downside and declined to 49.0, back to the contractionary territory (vs consensus: 50.3; June: 50.2). The manufacturing output sub-index and manufacturing new order sub-index were both in contraction, coming at 49.8 and 48.5 respectively. Exports new orders sub-index fell 2.1 points to 47.4.


Board-based decline of manufacturing activities in July

China’s official NBS manufacturing PMI expectedly dropped to 49.0, much weaker than the consensus expectation of 50.3 and 1.2 point lower from June.  It is important to note that all the 13 major sub-indices of the manufacturing PMI fell in July from June and 10 of the 13 below the 50-threshold, indicating contraction. After bouncing in June as many cities reopened from Covid-related lockdown, manufacturing activities across the board declined.  Most notably, from June to July, manufacturing output sub-index fell from 52.8 to 49.8, new orders sub-index from 50.4 to 48.5, new export orders sub-index from 49.5 to 47.4, imports sub-index from 49.2 to 46.9, employment sub-index from 48.7 to 48.6, purchase quantity sub-index from 51.1 to 48.9 and open orders sub-index from 44.2 to 42.6.

The weakness was among enterprises from small to large sizes

The weakness spread across large, medium-size and small enterprises, all having fallen sequentially and coming at 49.8, 48.5 and 47.9 respectively.  The drop among medium-sized enterprises was particularly drastic, falling 2.8 points from 51.3 in June to 48.5 in July. 

Inflation pressures showed sign of abating

Inflation of factory gate prices continued to abate as the producer price sub-index of the manufacturing PMI survey fell from 46.3 in June to 40.1 in July, the third consecutive month in the contractionary territory.  The input price sub-index plunged 11.6 point from 52.0 in June to 40.4 in July. 

Services activities moderated but firmly in the expansionary territory

Non-manufacturing PMI came at 53.8 largely in-line with expectations for July (vs consensus: 53.9; June: 54.7).  The services sub-index of the non-manufacturing PMI moderated slightly to 52.8 in July, from 54.3 in June but it stood in the expansionary territory. Air transportation, catering, lodging, environment protection and public facility management components came at above 60, indicating relatively strong expansion in support to the services sector.

Construction activities accelerated as infrastructure projects being rolled out

The construction sub-index of the non-manufacturing PMI surges 2.6 point to 59.2, indicating strong expansion.  The strong performance was largely due to the rolling-out of infrastructure construction projects. 

 

Figure 1: China manufacturing PMI & key sub-indices; Sources: Bloomberg, Saxo
Figure 2: China manufacturing PMI: large, medium & small-size enterprises; Sources: Bloomberg, Saxo
Figure 3: China manufacturing PMI input and producer prices; Sources: Bloomberg, Saxo
Figure 4: China non-manufacturing PMI; Sources: Bloomberg, Saxo

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
Beethovenstrasse 33
CH-8002
Zurich
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.