August 2, 2023: China’s factory activity contracted for a fourth consecutive month in July, while non-manufacturing activity slowed to its most vulnerable this year as the second-largest economy of the world works to restore growth momentum in the wake of soft global demand.

According to data from the National Bureau of Statistics released on Monday, the official manufacturing purchasing managers’ index came in at 49.3 in July compared with 49.0 in June, 48.8 in May, and 49.2 in April. July’s task was slightly better than the 49.2 median forecast.

Monday’s statues also showed China posted its weakest official non-manufacturing PMI reading this year, coming in at 51.5 in July compared with 53.2 in June, 54.5 in May, and 56.4 in April. A PMI reading over 50 indicates an expansion in the game, while a reading below that level indicates a contraction.

“Although China’s manufacturing PMI rebounded to 49.3% this month, some enterprises in the survey reported that the current external environment is complicated and severe, overseas orders have decreased, and insufficient demand is still the main difficulty facing enterprises,” Zhao Qinghe, a senior NBS official, wrote in an accompanying statement on Monday.

These readings for July point to the “tortuous” economic recovery that China’s top leaders described last Monday, which the Politburo attributed to insufficient domestic demand, difficulties in the operation of some enterprises, many risks and hidden dangers in critical areas, and a grim and complex external environment.

Employment sub-indexes for manufacturing and non-manufacturing sectors declined in July, indicating lingering softness as youth unemployment hit successive record highs in China. The service industry, a significant sector that hires young workers sub-index, slowed by 1.3 percentage points from the previous month, according to the NBS.

More worryingly, business expectations among the non-manufacturing sectors declined from the previous month.

A similar production and business activity expectation index for manufacturing sectors, though, saw an increase of 1.7 percentage points from the previous month, which the NBS attributed to policy support to develop private companies and expand domestic demand.