China factory activity contracts as broader PMI falls

China's factory activity fell back into contraction in July, official data showed Friday, while a broader gauge covering services and construction also declined.

The manufacturing purchasing managers' index fell to 49.2, the National Bureau of Statistics said. A reading below 50 indicates contraction. The figure was down from 50.3 in June and below the 50.1 expansion forecast in a Bloomberg survey of economists.

The official non-manufacturing PMI, covering sectors including services and construction, fell to 49.0 in July. The data showed the contraction was the most pronounced in more than three years.

NBS statistician Huo Lihui said the reading showed “a decline in the non-manufacturing sector's prosperity level” in July. Huo said significant declines in wholesale trade and monetary financial services were main factors, and said the real-estate sector was also below the critical point.

Julian Evans-Pritchard of Capital Economics said domestic weakness appeared largely to blame, while the export orders index had softened only slightly. He said the weakness would increase pressure on local governments to follow through on a Politburo request this week to step up spending.

The figures come as China's leaders try to revive domestic demand. According to state news agency Xinhua, President Xi Jinping acknowledged “difficulties and challenges” facing the economy and said China should improve the effectiveness of macroeconomic policies while focusing on the potential of domestic demand in the second half of the year.

Official data released this month showed China's economy grew 4.3% year-on-year in the second quarter of 2026, the slowest pace in more than three years. The government's official growth target for this year is 4.5% to 5.0%.