What is the impact of the continued slump in China's manufacturing sector on the global economy? The coexistence of "two Chinas" in the PMI: Overall expansion, but a slowdown in construction.

In August, China's economic sentiment reflected two contrasting views simultaneously. The Non-Manufacturing PMI from the National Bureau of Statistics (NBS) was 50.3, slightly improving from July's 50.1, maintaining an expansionary trend. On the other hand, the Manufacturing PMI remained below the 50-point economic threshold at 49.4, marking a contraction for the fifth consecutive month. The Composite PMI was at 50.5, barely staying in the expansion zone overall.Investing.comReuters

As the expression "barely expanding" for non-manufacturing suggests, the strength is limited. According to the breakdown published by NBS, the construction sub-index fell to 49.1, hinting at weaknesses in infrastructure and real estate. Meanwhile, services continued to expand, supporting the overall "bottom."中国政府网

In contrast, manufacturing slightly improved to 49.4 but remains in contraction territory. Uncertainties over tariffs with the U.S., prolonged real estate adjustments, and fiscal constraints of local governments are cooling business sentiment. The urban unemployment rate rose to 5.2% in July, casting a shadow on the labor market.Reuters

Interpreting Official PMI vs. Private PMI

In August, the "Private PMI (S&P Global/Caixin)" unexpectedly turned to expansion in manufacturing at 50.5, contrasting with the contraction in the official PMI. It is likely that support from exports and normalization of supply chains played a part, but it is important to note that differences in company size and response samples can easily lead to discrepancies in results.FXStreet

Macro Background—The "Ceiling" and "Floor" of the Economy

• External Environment: Although the tariff truce was extended by 90 days, policy uncertainty remains. The recovery in exports also relies on a shift towards Southeast Asia and the low base effect from the previous year.Investing.com

• Domestic Demand: The adjustment in the real estate sector is prolonged, and households are cautious about housing loans. The weakness in bank lending in July and sluggish employment indicators are suppressing the recovery of durable consumption.Reuters

Market Perception (Focusing on SNS Reactions)

On X (formerly Twitter) and in financial communities, the polarization of "weak manufacturing and resilient services" has become a renewed topic of discussion.

• Official accounts of China-friendly media emphasized "Manufacturing PMI 49.4, +0.1 from the previous month" and "Composite 50.5," suggesting that the tone is not entirely pessimistic.X (formerly Twitter)

• Market-related accounts calmly summarized "Composite 50.5 = The economy is in expansion territory but lacks momentum." Posts summarizing key points with diagrams were also observed.X (formerly Twitter)

• In the forex trader community, there was shared observation that the Australian Dollar (AUD) reacted momentarily to the upside surprise in the private PMI (50.5), with discussions on its correlation with risk sentiment.FXStreet

Picking up keywords from SNS, terms like "bifurcation," "mini reflation," "soft patch," and "property drag" frequently appear. Given that the figures can be interpreted as both bullish and bearish, sentiment is prone to fluctuations depending on the time of day and additional headlines.

Implications by Sector

• Services: Pent-up demand remnants in travel and dining, along with policy support (consumption vouchers and events), provide a cushion. However, the expansion power of high-value-added services is slightly slowing compared to the previous period. The figure of 50.3 for non-manufacturing itself tells the story of "expansion but lacking momentum."Investing.com

• Construction & Real Estate: The construction sub-index of 49.1 reflects inventory adjustments and the restraint of new starts. This also affects related materials (steel, cement) and machinery operations.中国政府网

• Export Manufacturing: While the official PMI shows contraction, the private side indicates economic expansion. Exploring alternative markets and aggressive discounting maintain quantities, but the thin profit margins are a factor squeezing profits.FXStreetChina Daily Asia

Investor Checklist (Next Steps)

1. Backing Hard Data: Monthly figures on industrial profits and imports/exports, as well as real estate sales and starts. Verify whether the leading nature of PMI is impacting reality.Reuters

2. Policy Tracker: Timing and scale of fiscal stimulus, progress in infrastructure bond issuance, and additional housing support measures.Reuters

3. PMI Calendar: This week, the final service PMI (private) is awaited. Whether the figures can maintain the mid-50s will test the strength of the "floor" in non-manufacturing.FXStreet

Summary: Expansion "Continues" but Acceleration is "Not Seen"

The message for August is clear. While the Composite 50.5 indicates continued expansion, manufacturing remains in contraction. The current trend is a "slow expansion" supported by services, and for significant economic acceleration, three elements are necessary: (1) reduction in external uncertainties, (2) bottoming out of housing and construction, and (3) alleviation of household future anxieties. The key will be whether additional policy support and confirmation of hard data can be observed from September to October.Reuters中国政府网

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