China's factory output contracts in July amid declining exports

China’s factory activity deteriorated in July, as a softening of new business growth led manufacturers to scale back production, a private-sector survey showed on Friday.

The S&P Global China General Manufacturing PMI fell to 49.5 in July from 50.4 in June, undershooting analysts’ expectations of 50.4 in a Reuters poll. The 50-mark separates growth from contraction.

The reading, combined with Thursday’s official survey, bodes ill for growth momentum at the start of the third quarter, following robust growth in the first half of the year.

Amid a trade truce with Washington, economists say the support of exports front-loading ahead of higher U.S. tariffs to the world’s second-biggest economy may fade over the remainder of the year.

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According to the S&P Global survey, new export orders contracted for a fourth straight month and at a faster pace than in June.

After rising in June, manufacturing output declined in July. Firms looked to utilise their current stock holdings for the fulfilment of orders, which contributed to a second successive monthly decline in post-production inventories.

Falling production together with a stable backlog prompted factory owners to lower their headcount in July. Firms also said cost concerns had underpinned decisions to shed staff.

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However, business sentiment improved at the start of the second half of 2025 but was still below the series average. Manufacturers expected better economic conditions and promotional efforts to spur sales in the year ahead.

As Beijing started to tackle “price wars” among manufacturers, average input prices increased for the first time in five months. Firms nevertheless lowered their selling prices again as competition for new business intensified. But export charges increased at the fastest pace in a year due to rising shipping and logistics costs.

Top leaders on Wednesday pledged to support an economy that is facing various risks, by managing what is viewed as disorderly competition in the second half of the year.

Markets expected that Beijing may be about to start a new round of factory capacity cuts in a long-awaited but challenging campaign against deflation.

From July, Caixin no longer sponsors the S&P Global China PMI.

(This is an agency copy. Except for the headline, the copy has not been edited by Firstpost staff.)