China Economics: PMIs Slip into Contraction as Growth Momentum Fades

Research evidence excerpt

China Economics: PMIs Slip into Contraction as Growth Momentum Fades

China Economics

31 July 2026 Citi Research

Mfg PMI fell into contraction in July for the first time in five months. The headline

index declined by a notable -1.1ppt to 49.2, well below forecasts (CitiE/Mkt:

49.9/50.1). The deterioration was larger than the typical seasonal decline in July.

The PMI for large enterprises fell -1.2ppt into contraction for the first time in eight

months, while readings for medium-sized and small firms both declined

by -0.8ppt.

n Production slipped into contraction. The production sub-index fell -1.5ppt to

49.9, marking its first contractionary reading in five months. Extreme weather,

compounded by the seasonal industrial slowdown, weighed on production.

n Demand weakened more sharply on the domestic front. Overall new orders fell

-2.7ppt to 48.5, the lowest reading since June 2023, while new export orders

declined by a much smaller -0.5ppt to 49.6. Meanwhile, the imports sub-index

dropped -2.1ppt to a six-month low of 47.5.

n Disinflation continued despite higher oil prices. Purchase price softened to

53.2 (vs. 54.2 in June), its lowest level this year, even as oil prices rose. Producer

price declined more modestly to 47.8 (vs. 48.2), the lowest level in 9 months.

n K-shaped divergence remains entrenched: High-tech mfg. PMI remained firmly

expansionary at 53.3 (vs. 53.5), significantly outperforming overall mfg. PMI.

Weakness persisted in the old economy – for example, ferrous metal smelting

still in contraction for both demand and production.

Non-Mfg PMI also returned to contraction, falling -1.2ppt to 49.0 in July, below

the consensus forecast of 50.0.

n Construction PMI fell to its lowest level since the pandemic. The index

declined to 47.0 (vs. 49.0).