（Singapore, 31.07.2026）China’s manufacturing sector unexpectedly slipped back into contraction in July, while construction activity fell to its weakest level since the Covid-19 pandemic, adding to signs that the world’s second-largest economy is losing momentum and increasing expectations for fresh policy support.
Official data released on Friday showed the manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 in July from 50.3 in June, dropping below the 50-point mark that separates expansion from contraction. The reading was also below economists’ expectations, with a Bloomberg survey forecasting a median of 50.1.
The weaker-than-expected figures ended four consecutive months of expansion and marked the first contraction since February.
The slowdown extended beyond factories. China’s official non-manufacturing PMI, which measures activity in the construction and services sectors, fell to 49.0 from 50.2 a month earlier, its weakest reading since December 2022. Construction activity was particularly weak, with its PMI plunging to 47.0, the lowest level since the pandemic began.
The composite of PMI, which combines manufacturing and services, also slipped into contraction at 49.3, pointing to a broad-based loss of economic momentum at the start of the third quarter.
The disappointing data comes after China’s economy expanded just 4.3% in the second quarter, the slowest pace in more than three years. However, stronger growth earlier in the year lifted first-half expansion to 4.7%, keeping the economy within Beijing’s full-year growth target of 4.5% to 5%.
Economists said the latest PMI readings suggest the slowdown that emerged in the second quarter has continued, increasing pressure on policymakers to introduce additional measures to support growth.
Henry Hao, senior economist at Commerzbank in Singapore, described the latest weakness as “a cyclical speed bump rather than an entrenched collapse,” but said the figures strengthen the case for faster fiscal spending and raise the likelihood of an interest rate cut before the end of the year.
China’s National Bureau of Statistics (NBS) attributed part of the weakness to extreme weather conditions. Heatwaves, heavy rainfall, flooding and typhoons disrupted construction projects and manufacturing operations in several regions during July. Officials also pointed to seasonal factors and a higher comparison base from a year earlier as weighing on factory activity.
However, many economists believe weather disruptions tell only part of the story. The manufacturing slowdown was largely driven by weaker domestic demand, with the new orders sub-index falling to 48.5, its lowest level in 38 months. Factory-gate prices also continued to weaken after briefly rebounding earlier this year following higher global energy prices, suggesting pricing pressure remains across the industrial sector.
Julian Evans-Pritchard, Head of China Economics at Capital Economics, told Bloomberg that domestic weakness appeared to be the main reason behind the disappointing PMI data, although export orders also softened.
Exports have been one of the few bright spots for China’s economy this year, supported by manufacturers rushing shipments overseas ahead of expected tariff increases from the United States. That front-loading helped exports post double-digit growth during the first half of the year and kept factory activity in expansion territory for several months.
But analysts say that boost is beginning to fade. A survey by China Beige Book showed shipments to the United States declined in July for the first time in several months after companies had accelerated deliveries before higher US tariffs took effect.
Retail sales also weakened during the month, with consumer spending on travel and restaurants falling sharply from a year earlier, highlighting continued softness in domestic consumption.
The weaker economic data was released just one day after China’s top leadership acknowledged the economy continues to face “difficulties and challenges” during a key Politburo meeting.
Senior officials pledged to roll out additional policies, accelerate fiscal spending and speed up the use of funds raised through government bond issuance to support growth in the second half of the year.
Until recently, economists had expected Beijing to avoid introducing major stimulus measures while exports remained resilient. The latest PMI figures, however, have strengthened expectations that policymakers could move more quickly to support domestic demand.
Ding Shuang, Chief Economist for Greater China and North Asia at Standard Chartered, told Bloomberg that both manufacturing and non-manufacturing PMIs falling below 50 indicate the slowdown seen since the second quarter has yet to stabilise, adding urgency to further policy action.
China’s economy also faces growing external challenges, with the United States recently introducing new tariffs on several trading partners while continuing investigations into China’s industrial overcapacity, raising the possibility of additional trade restrictions. Washington has also tightened export controls on products including robots and power inverters, a move that could further intensify technology tensions between the world’s two largest economies.
At the same time, Europe is reportedly examining China’s economic vulnerabilities as it prepares for the possibility of broader trade disputes.
Despite the overall slowdown, China’s industrial recovery remained uneven, with official data showing high-tech manufacturing and equipment manufacturing continuing to expand, posting PMIs of 53.3 and 51.4, respectively.
In contrast, consumer goods manufacturing and energy-intensive industries remained firmly in contraction, reflecting persistent weakness in household demand.
Xue Zhou, Senior China Economist at Mizuho Securities Asia, said the latest figures reinforce the picture of a “two-speed economy,” where advanced manufacturing continues to outperform while consumer-related sectors and traditional industries remain under pressure.
Analysts said the coming months will be critical in determining whether Beijing can successfully revive domestic demand while navigating mounting trade tensions and slowing global growth.
With manufacturing, construction and services all showing signs of weakness, investors are now watching closely to see whether China’s leadership follows through on its promise to deliver additional policy support before economic momentum weakens further.
