China's manufacturing PMI in August is still below the threshold, weak service industry highlights pressure on domestic demand

China's official manufacturing procurement manager index in August, although recovered from the previous month, is still in a contraction zone. Reuters on August 31, that the official manufacturing PMI from 49.2 lb in July to 49.8 lb in August, is still below the 50th edge; the non-manufacturing business activity index remains at 49.0, showing that services and construction related activities are still weak.

* Manufacturing contraction has eased

Reuters' report on China's PMI in August showed that China's official manufacturing PMI rose to 49.8 in August, improving from 49.2 in July, but still below 50, meaning that overall manufacturing activity is still within the contraction range.

This change shows that manufacturing has slowed down, but is not enough to show that economic demand has fully recovered.PMI close to 50 can only show marginal improvements in the economy, and can not mask the reality that enterprise orders, profits and employment expectations are still under pressure.

*High-tech manufacturing and export formation support*

Reuters reports that August data improvements were driven mainly by AI-related demand, export orders and some high-tech manufacturing.High-tech manufacturing and equipment manufacturing performed better than manufacturing as a whole, while consumer goods and high-energy industries remain weak.

This means that there is a significant differentiation within China’s manufacturing industry.On the one hand, semiconductors, AI-related equipment, electric vehicles and some advanced manufacturing chains can still benefit from external demand; on the other hand, industries that rely on domestic consumption, real estate investment and traditional infrastructure expansion have recovered.Beijing has long emphasized “new-quality productivity” and high-end manufacturing, but the expansion of the high-tech industry has not yet fully translated into broad improvements in resident income, consumption and SME orders.

The weakness of the service industry exposure to internal needs

Even more remarkable, the non-manufacturing business activity index remained at 49,0.The indicator covers the service and construction sectors and continues below 50, indicating that consumption, real estate-related activities and local investment motivation are still insufficient.

The core contradictions facing the Chinese economy in recent years are not only whether factories can produce, but whether domestic households and enterprises are willing to consume, invest and borrow. Long-term decline in real estate weakens the balance sheet of residents, youth employment and income expectations affect consumer will, and local debt pressure also limits the ability of local governments to expand investment.

Political incentives remain cautious

China’s policymakers have pledged to support the economy, including expanding loan interest rates and accelerating some infrastructure spending, but still avoiding massive stimulus.Beijing is trying to maintain a balance between stable growth, controlling debt risk and preventing asset bubbles.

This policy orientation reflects the structural difficulties of China's economic governance: if stimulus is insufficient, domestic demand and employment are difficult to recover quickly; if stimulus is too strong, it may exacerbate local debt, financial risks and inefficient investment.

* Political and Economic Signals

From a political perspective, official data continues to show that Beijing is facing growth pressures. Chinese officials often emphasize the economy’s “stability in the right direction” and industrial upgrading, but PMI continues to be close to the critical line, indicating that enterprise sectors still lack sufficient confidence in demand prospects. If consumption, real estate and private sector investment continue to be low, China’s economy may further rely on exports, high-tech manufacturing and government-led investment.

This model can maintain partial growth in the short term but can also deepen external trade friction, overcapacity and imbalances in the distribution of domestic income.For the general public, marginal improvements in macro indicators do not necessarily lead to synchronous improvements in employment, income and consumer confidence.

As of the publication, this article is based on the official PMI data of China, by Reuters on August 31 and cited by it. The follow-up needs to pay attention to the National Bureau of Statistics' complete branch data, financial news and private survey indices such as RatingDog, corporate profits, credit and retail sales data, to judge whether the improvement in August is a short-term recovery or whether the economic momentum can really stabilize.