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China's economic woes mount as manufacturing continues to shrink

Chinese factory economy
Output at China's factories slowed unexpectedly in July.
Visual China Group/Getty Images

  • China's economic woes are mounting, with more negative news coming in every week.
  • The nation's manufacturing activity shrank for the fifth straight month, the latest data show.
  • Economists have slashed their China growth forecasts for 2023 and 2024.
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China's manufacturing sector contracted for a fifth straight month in August, indicating troubles for the world's second-largest economy are far from over.

The latest reading for the nation's manufacturing purchasing managers' index, or PMI, came in at 49.7 — below the 50 level that divides expansion and contraction.

Factories in the Asian nation have been struggling for months because of a slump in global demand as well as reduced domestic consumer spending. 

Manufacturing PMI figures for August actually exceeded the expectations of analysts polled by Reuters and may signal a slight uptick in performance – though as long as the figure shows contraction, China's growth forecasts will remain subdued. 

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"It could be worse. Flatlining is not plunging," Robert Carnell, chief economist at ING Group, told Bloomberg.  

Economists have cut their China GDP forecasts for both this year and next – expecting the economy to grow just 4.5% in 2024, well below the government's 5% target.

And the country's policymakers are under increased pressure to intervene in its stumbling economy. 

Beijing has lowered its official GDP target for 2023 to just 5% in March and has responded to signs of stuttering growth by cutting stamp duty taxes, loosening housing market restrictions, and slashing key interest rates.

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But these measures have fallen short of the massive amount of stimulus it would take to revive its ailing industries – including its enormous, debt-ridden property sector. 

China's property sector makes up about 30% of the country's overall output. Since 2021, more than 50 Chinese real-estate firms have collapsed, and the consequences have reverberated around global markets throughout.

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