China’s manufacturing sector contracted in July, ending a four-month period of expansion as weakening demand and persistent challenges raised concerns over the outlook for industrial growth. Data released by the National Bureau of Statistics (NBS) showed the manufacturing purchasing managers’ index (PMI) declined to 49.2 last month, down from 50.3 in June and below economists’ expectations of 50.11.

A PMI reading above 50 signals expansion, while a figure below indicates contraction, meaning China’s factory activity has entered a period of shrinkage. The new orders subindex, which reflects demand for manufactured goods, dropped to 48.5 in July from 51.2 in June. Similarly, new export orders also fell into contraction territory, sliding to 49.6 from 50.1 the previous month.

Huo Lihui, a statistician at the NBS, attributed the slowdown partly to a high comparison base created by rapid growth in prior months combined with seasonal factors affecting certain manufacturing sectors. Huo noted that although production and market demand cooled overall, some technology-related industries, such as specialized equipment manufacturing, showed resilience with new orders and production indices both above 53. In contrast, sectors including ferrous metal smelting and automotive manufacturing faced weak supply and demand conditions.

Economists highlighted the July data as a sharp decline, emphasizing the urgency for additional policy measures from Beijing to bolster the economy. Lynn Song, chief economist for Greater China at ING, pointed out that despite the somewhat diminished correlation between PMI readings and industrial output in recent years, the contraction was consistent with a slow start for the second half of 2026. Song also noted that the producer price index remained in negative territory for the second consecutive month—falling to 47.81 in July from 48.21 in June—raising concerns about the sustainability of China’s reflation efforts.

The slowdown was not limited to manufacturing. The non-manufacturing PMI, which tracks activities in construction and services, declined to 49 in July—the lowest since the pandemic year of 2022. Song described this as a negative indicator amid government efforts to stimulate consumption and services-led growth.

Following the release of the data, Beijing delivered signals of increased policy support. At a recent meeting of the Communist Party’s Politburo, officials pledged to strengthen macroeconomic measures and improve capital market resilience for the remainder of the year. The Politburo committed to accelerating fiscal spending and advancing a transition from traditional growth drivers to more sustainable sources of economic expansion.

Zhang Zhiwei, president and chief economist at Pinpoint Asset Management, noted the manufacturing sector had “slowed more than expected” in July, interpreting the Politburo’s emphasis on quality over speed of growth as a shift in policy priorities. Analysts broadly view the government’s renewed focus on stimulus as a necessary response to mounting headwinds in both manufacturing and service sectors.