China's official manufacturing Purchasing Managers' Index (PMI) dropped to 49.2 in July, indicating contraction in factory activity for the first time in five months [1, 2, 3, 4]. The non-manufacturing PMI, covering construction and services sectors, also declined to 49 from 50.2 in June, the lowest level since December 2022 [1, 2, 3]. China's construction sector was hit hardest, with its PMI plunging to 47—the weakest since the start of the COVID-19 pandemic [1]. This slump was partly attributed to disruptions from summer heatwaves and heavy rainfall affecting some regions [1].
Economic growth slowed markedly, with the National Bureau of Statistics reporting a 4.3% year-on-year increase in GDP for the second quarter of 2026, the weakest quarterly growth in over three years [1, 2, 4]. Growth for the first half of 2026 stood at 4.7%, still within the official target range of 4.5% to 5% [1, 2]. Although exports surged earlier this year by 27%, aided by frontloading shipments before US tariff hikes, exports to the US fell in July for the first time in several months [5, 4].
Factory employment showed significant weakness, with job growth worsening across all sectors compared to a year earlier [5, 4]. Retail sales also fell in July from both the previous month and a year earlier, with travel and restaurant industries experiencing sharp downturns [5, 4]. Analysts pointed to weakening domestic demand despite some resilience in exports earlier in 2026 [2, 4].
Chinese policymakers met on July 30 and pledged to "roll out pragmatic and effective new policies in a timely manner" to stabilize the economy amid "difficulties and challenges facing the economy" [2, 4]. They plan to accelerate public spending and use funds from government bond issuance to support growth [1, 2].
The National Bureau of Statistics confirmed the PMI data on July 31, highlighting the economic slowdown [1, 2, 3, 4]. Meanwhile, official trade data for July is scheduled for release on August 7, with retail sales and investment figures due on August 17 [5]. These reports will provide further insight into the trajectory of China's economic momentum.
