China’s manufacturing activity has witnessed a troubling trend, declining for the fourth consecutive month in July. 

The services and construction sectors are also teetering on the brink of contraction, raising concerns about the country’s growth prospects for the third quarter.

Data from the National Bureau of Statistics revealed that the construction sector’s activity in July was the weakest since the dissipation of Covid-19-related workplace disruptions around February.

During the second quarter, the world’s second-largest economy experienced slow growth, attributed to weak demand both domestically and internationally. 

The official manufacturing purchasing managers’ index (PMI) increased slightly to 49.3 in July, just above June’s 49.0, but remained below the critical 50-point mark separating expansion from contraction.

The non-manufacturing PMI, which includes sub-indexes for the service sector and construction, declined from June’s 53.2 to 51.5. Within this, the sub-index for construction, a significant employer amidst a broader unemployment crisis, dropped from a high of 65.6 in March to 51.2 this month.

Economists express concern over the sharp fall in construction activity, fearing it could lead to a ‘death spiral’ in the property sector. 

However, some analysts believe that China’s manufacturing sector hit bottom in the second quarter and may now see improvements as inventory levels show improvement.

China’s top leaders pledged to strengthen economic policy support to counter these challenges, focusing on expanding domestic demand, boosting confidence, and managing risks.

While the sub-index for new orders contracted more slowly in July, the decline in the export component accelerated, signaling that the economic recovery would heavily rely on domestic demand.

Experts suggest that policymakers may be cautious about implementing aggressive stimulus measures to boost domestic consumption due to concerns over growing debt risks, despite the task’s urgency.

Economists emphasize that concrete policy support is crucial to prevent the economy from slipping into recession, especially given the persistence of external headwinds. 

Without timely support, the recent downturn in demand risks becoming self-reinforcing.