In June, the prosperity of the manufacturing industry was still higher than the critical point, but the expansion rate slowed down, indicating that the manufacturing production and operation activities slowed down, and market confidence continued to fall.

The Caixin China Manufacturing purchasing Managers’ Index (PMI), released on July 3, recorded 50.5 in June, down slightly by 0.4 percentage points from May and in expansion territory for two consecutive months.

The trend is at odds with the National Bureau of Statistics. The manufacturing PMI released by the Bureau of Statistics edged up to 49.0 in June, 0.2 percentage points higher than in May, and below the line of expansion and contraction for three consecutive months.

From the sub-data, the expansion rate of manufacturing output and demand has slowed down to varying degrees. The manufacturing production index fell significantly in June from an 11-month high in May, but remained above the line between expansion and contraction. The manufacturing new orders index also slipped slightly into expansion territory. Divided into three categories of goods, only the demand for consumer goods increased, the middle category was basically flat, and the new orders for investment categories decreased.

On the external demand side, the new export orders index was only slightly above the critical point in June, indicating little change in the volume of new business overseas. The sample companies reported that global economic conditions had weakened, leading to weak exports. Specifically, the external demand of consumer and investment categories declined, and only the intermediate category increased slightly.

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After recording the lowest reading since March 2020 in May, the manufacturing employment index rebounded slightly in contraction territory in June, remaining well below the line between expansion and contraction. Companies said they were cutting back on hiring as sales fell short of expectations and capacity readjustments. The employment of the three categories of products contracted, and the investment category was the most obvious. The backlog index returned to above the critical point in June, but the backlog rate was relatively low. Some companies have increased their new business volume, leading to a rise in order backlogs, but some companies said they have sufficient capacity to handle orders in a timely manner.

Lower raw material prices continue to drive down manufacturing costs. In June, the purchasing price index of manufacturing raw materials fell slightly in the contraction range, of which the cost of intermediate and investment products fell, and consumer products rose slightly. With the decline in costs and the intensification of market competition, enterprises continue to cut prices to promote sales, and the ex-factory price index has risen slightly in the contraction range, which is still significantly lower than the line of growth and contraction.

The improved supply of raw materials, coupled with manufacturers asking suppliers to speed up deliveries due to rising sales, kept the supplier delivery time index above the critical point in June, but edged down from the previous month.

The manufacturing output expectations index continued to slow in expansion territory in June, having fallen to its lowest level since November 2022. The survey showed that 17 percent of manufacturers expected to increase production in the coming year, citing improving domestic and overseas economies to support higher customer demand, while 6 percent expected production cuts, expressing concern about relatively weak market conditions.

Wang Zhe, a senior economist at Caixin Intelligence Group, said that the current economic recovery foundation is not solid, the repair speed is not as expected, and the lack of internal impetus for economic growth, weak demand and poor market expectations are still prominent problems. The decline in employment, the increase in deflationary pressures and the fading of optimistic expectations reflected in the Caixin China manufacturing PMI in June also point to this fact. In the coming period, relevant policies should strengthen support at the macro level and improve efficiency at the micro level to ensure that policy dividends reach market players and effectively improve employment and market expectations.