A reading of 50 indicates growth in China’s manufacturing. Anything below that is a sign of contraction, based on the widely followed Markit index. Because China’s economy and employment is so dependent on factory work, contraction means that a key factor of the health of domestic product has signaled deep trouble.
Markit and media company Caixin reported:
Chinese manufacturing contracted in June for the first time in four months as new orders decreased amid reports of trade tensions, a Caixin survey showed Monday.
The reading indicates continued downward pressure on China’s economic growth.
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the manufacturing sector’s operating conditions, dipped to 49.4 in June from 50.2 in May, indicating a marginal deterioration. It’s the lowest reading since January for the sector, which accounts for about 30% of China’s gross domestic product.
The data also shows that the trade war with the United States has started to bite into a part of the economy that the central government cannot easily remedy, if it can remedy it at all. Manufacturing relies so heavily on exports, and some modestly on China’s own needs. that trade talk settlements will be essential to turn it around.
Another problem is the extent to which China’s middle class relies on manufacturing work. If this group takes an economic hit, it will be another drag on gross domestic product.