Edited in collaboration with my custom GPT to refine syntax, clarity, and structure for improved readability. I do not express my personal beliefs in this newsletter; instead, I aim only to present and format information sourced from credible external references. That said, this is not intended to showcase my writing skills, but rather to help me stay informed in this industry—and, hopefully, help you do the same.

China’s July Manufacturing Contraction Reveals Lingering External Strain

China’s manufacturing sector edged back into contraction in July, reinforcing a broader narrative of global uncertainty and weak external demand that continues to weigh on factory activity. According to S&P Global, the general manufacturing purchasing managers index (PMI) slipped to 49.5, down from June’s 50.4. Any reading below 50 signals contraction.

The data comes alongside a similar move in the official manufacturing PMI, which fell to 49.3. These parallel declines suggest more than just noise—they reflect deeper softness in new export orders and a cautious tone among industrial operators.

Firms continue to face margin pressure as rising input costs are met with intensified price competition. Many responded by cutting output and reducing headcount. Notably, manufacturers report that overseas demand remains sluggish, with only modest growth coming from domestic channels.

While internal demand has helped stabilize order volumes to a degree, the overall picture remains mixed. Factory owners are managing inventories tightly, hesitant to overcommit while the outlook for global trade remains uncertain. S&P analysts noted that while some businesses found success domestically, overall sales were only marginally higher, suggesting limited spillover from stimulus or localized growth efforts.

This marks the second time in three months that the PMI has dipped below 50, raising questions about whether the manufacturing rebound seen in Q1 2025 can be sustained without more robust external demand or broader domestic support.

Still, equity markets across Asia responded relatively positively. As of Friday’s close:

• Asia Dow: 4,595.22 (+0.43%)
• Nikkei: 40,544.99 (+0.63%)
• Hang Seng: 24,713.69 (−0.08%)
• Shanghai Composite: 3,598.79 (+0.43%)
• BSE Sensex: 81,018.72 (+0.52%)
• Singapore STI: 4,213.59 (+0.39%)
• Kospi: 3,185.41 (+1.20%)
• ASX 200: 8,743.10 (+0.92%)

Market participants appear to be weighing expectations of further government action. Without stronger external tailwinds, China's policymakers may face renewed calls to accelerate fiscal and credit support, especially if key indicators like industrial production, exports, and employment continue to weaken into Q3.

For businesses and investors watching China’s industrial sector, the key question now is whether policymakers will act preemptively—or wait for more visible distress before deploying additional tools.