China PMI Continues Collapse as Other Forces Challenge Growth

According to executives at the research firm:

China’s manufacturing sector suffered its worst decline in July since March last year, as the final Caixin China Purchasing Managers’ Index slipped to 47.8 points.

This is 0.4 points lower than the preliminary figure released in late July. The final PMI for June was 49.4, below the 50-point mark that separates growth from contraction.

The central government continues to insist that GDP will expand at the rate of 7% this year. Each piece of bad news about manufacturing undermines that forecast. Since China’s economy has expanded closer to or above 10% for the past decade, it is impossible to predict what will happen if the expansion drops to 6% or lower. The central government already has taken action to prop up the economy. This has included cuts in interest rates and support for a collapsing stock market.

Factory activity is not the only challenge Beijing faces. Broad problems with air and water pollution, and how to stop their advances, have vexed the government. In some cities, the air is barely breathable. In other areas, the water is dangerous to drink and also affects the safety of the crops it irrigates. To solve these problems, the government may need to curtail factory activity, regardless of demand from overseas.

The PMI problem is only one of several that threatens GDP at a level at which it has not been challenged before.

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