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China's factory output contracts in July

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Economic challenges ahead for China

China’s manufacturing output measured in terms of purchasing managers' index (PMI) unexpectedly dropped to 49 in July from 50.2 in June, data released by National Bureau of Statistics (NBS) showed. Analysts were expecting the reading to rise to 50.4.

Any reading above 50 is considered as growth while a sub 50 score indicates contraction.

China’s new export orders too contracted at a faster rate at 47.4 in July against 49.5 in June.

The official PMI for manufacturing activities is a direct reflection of the economic trends in the country. Importantly, this could have a direct impact on employment. The reading would worry Chinese authorities especially as Beijing is witnessing a rise in uncertainty in its real estate sector with large number of home buyers refusing to pay mortgages.

In January, China registered a PMI of 50.1. However, in April amid Covid 19 induced lockdowns in several cities, it dropped to 47.4. But in May it rose to 49.6 and in June it was at a healthy 50.2 level.

In the April-June quarter, China’s economy registered a sharp contraction of 2.6 per cent against a 1.4 per cent growth in the January-March quarter, this year. This was China’s first quarterly contraction since the first quarter of 2020, when the pandemic had just hit.

Also read: Prices of new homes crash in China amid buyers refusing to pay mortgage