China’s Factory Activity Shrinks for Fourth Consecutive Month, Economic Growth Target at Risk

China’s factory activity contracted for the fourth consecutive month in August, signaling ongoing challenges for the world’s second-largest economy in meeting its annual growth target. The official manufacturing purchasing managers’ index (PMI) fell to 49.1 from July’s 49.4, according to the National Bureau of Statistics. This reading remains below the critical 50-point mark that separates expansion from contraction, reflecting persistent economic difficulties.

China’s $17 trillion economy is grappling with a prolonged downturn in the property sector, which is impacting both consumer spending and business investment. Although the government has implemented measures such as interest rate cuts to boost economic sentiment, these efforts have yet to yield substantial improvements. The economy remains heavily dependent on manufacturing and exports to achieve its growth objectives.

Trade tensions with the US and Europe are adding to the sector’s challenges. President Xi Jinping’s administration aims for a GDP growth of approximately 5% this year. Economists suggest that reaching this target will require increased infrastructure spending and more supportive fiscal policies.

Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, noted that the restrictive fiscal policy stance could be hindering economic momentum. He indicated that a more supportive fiscal approach might be necessary for stabilization, particularly as slowing global economies and reduced export reliability add to the strain.

The National Bureau of Statistics attributed the recent contraction partly to adverse weather conditions and seasonal production slowdowns in certain industries. However, the non-manufacturing sector showed some resilience, with activity in construction and services rising to 50.3, slightly above expectations and July’s 50.2.

Economists from UBS Group AG and JPMorgan Chase & Co. predict that China may not achieve its 5% growth target this year. Recent data highlights a decline in loans to the real economy, a slowdown in fixed-asset investment, and weaker-than-expected export performance. Sluggish credit demand, coupled with a persistent property downturn and a challenging job market, are deterring spending.

External demand is also under pressure, with manufacturing activity gauges in the US and the euro area reflecting a deeper slump in August. Additionally, rising trade protectionism poses further risks, with new tariffs from the US and the EU impacting Chinese exports, including a decrease in the registration of Chinese electric cars in Europe.

Bloomberg Economics notes that without additional policy support, the outlook for China’s economy remains bleak. The slow pace of budget expenditure and modest government responses to economic challenges are raising concerns about future growth.

Finance Minister Lan Fo’an, however, remains optimistic, describing the economy as growing at a 5% rate and maintaining that macroeconomic policies will continue to support development.