On Saturday, August 31, the National Bureau of Statistics of China reported that China’s official manufacturing purchasing managers’ index fell to 49.1 in August 2024 from 49.4 in July 2024. This was below the median forecast of 49.5 by economists surveyed by Bloomberg News. The index has indicated a contraction in the manufacturing sector for most months since April 2023.

With China’s factory activity contracting for a fourth consecutive month in August, the world’s second-largest economy may struggle to reach its annual economic growth target.

China’s USD 17 trillion economy has faced challenges due to a prolonged property downturn affecting consumers and businesses. Despite government efforts, such as interest-rate cuts, to improve sentiment, the economy heavily relies on manufacturing and exports to maintain its growth target.

However, increasing trade tensions with the US and Europe pose additional challenges for the manufacturing sector. President Xi Jinping’s government aims for a GDP growth of approximately 5% this year, requiring accelerated spending on infrastructure and other programs to achieve this goal.

The statistics office reported that the non-manufacturing measure of activity in construction and services increased to 50.3, driven by summer holiday season consumption. This outpaced the forecast of 50.1 and the July reading of 50.2.

Recent data indicated the first contraction of loans to the real economy in nearly two decades, a surprising slowdown in fixed-asset investment, and weaker-than-expected exports. The property downturn and a challenging job market have dampened credit demand, discouraging spending by businesses and consumers.

Furthermore, external demand is under pressure, with manufacturing activity in the US and the euro area signalling a deeper slump in August.

The impact of trade protectionism is becoming increasingly significant, with new barriers to commerce imposed by the US and the European Union citing Beijing’s excessive industry capacity built through state subsidies. In July, Chinese automakers faced reduced registrations of electric cars in Europe due to Europe’s new tariffs.

Although facing growth headwinds, the government response has been less assertive, with less than half of the budgeted expenditure completed in the first seven months of 2024. Finance Minister Lan Fo’an stated on Friday that the economy is still growing at 5%, describing its performance in the first half as “generally stable and progressing steadily.”

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