Manufacturing activities failed to expand over the summer - China's official manufacturing Purchasing Managers' Index (PMI)

Manufacturing activities will not be sufficient to revitalize China’s economic growth following lockdowns

The fact that China is struggling to recover from the great lockdowns earlier this year suggests that businesses need to be prepared for a “new normal” that will last until at least H2 2023 and possibly longer. In this environment, economic activities will remain subdued for longer than many anticipated, and weakness will be exacerbated by frequent disruptions from stringent zero-COVID policies, sporadic power shortages, and an ongoing debt crisis in the real estate sector. Because no one can predict where and when the next disruption will occur, firms should always have contingency plans at hand. For example, firms with factories should have a plan to maintain production under a “closed-loop” model in the event of an imminent lockdown. Likewise, firms with offline sales channels should establish mechanisms that enable all sales activities to smoothly shift online within a short period of time. To be clear, we are not here to play doomsayer. Rather, we are reinforcing that companies must be prepared for weakness and persistent turbulence during the next nine months—and possibly beyond.


  • China’s official August PMI (Purchasing Managers’ Index) reading edged up to 49.4 from 49.0 in July but remains below the 50 benchmark, indicating that manufacturing activities still contracted in August.
  • All five primary sub-indexes of the PMI, namely, new orders, production, employment, supplier deliveries, and inventories, were below the benchmark of 50, although most of them ticked up from a month ago.
  • Another equally prominent PMI reading, compiled by Caixin, a business magazine, logged 49.5 for August’s PMI, down from 50.4 in July.
  • It also indicates contraction in the manufacturing sector in August, although the deteriorating trend it shows contrasts with that shown by the official one.

Our View

Both official and unofficial PMI readings show that China’s manufacturing sector has failed to rebound to expansion over the summer. This contrasts with widely held expectations that Q3 would see China’s recovery gain momentum after megacities such as Shanghai came out of full lockdowns. It also shows that the ambitious stimulus packages rolled out by the top leadership several months ago, which relied heavily on infrastructure building, haven’t been as effective as expected, at least for now. 

The PMI readings are well in line with our expectations. Due to weak demand, China’s recovery will be slow, bumpy, and highly vulnerable to unexpected disruptions, which could be caused by intentional policies, such as zero COVID, or by factors outside the government’s control, such as extreme heatwaves. Either way, we don’t expect China to unleash any further major stimulus measures for the rest of the year, given that the leadership has repeatedly stressed that it will not “flood the market with excessive liquidity.” The current difficulties in the Chinese economy will persist and could get worse before getting better.

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