Manufacturing, construction, and services PMI indices continue to decline; the economy struggles to overcome institutional and structural constraints.

In April, the PMI indices for manufacturing, construction, and services all declined, confirming San Lang’s earlier assessment of a ‘seasonal rebound’. Manufacturing activity was sustained by existing orders, while new orders weakened; demand in construction and services was clearly insufficient. The supply-demand balance index indicates persistent post-pandemic oversupply, with enterprises’ pricing power continuing to erode and profit margins under pressure. Despite accommodative monetary policy and proactive fiscal policy, economic sentiment remains in sustained decline—the root cause lies in institutional issues such as income distribution and industrial policy. I. In April, the PMI indices for manufacturing, construction, and services—all three major sectors—declined month-on-month. In April, the Purchasing Managers’ Index (PMI) for manufacturing, construction, and services all fell compared to March—both anticipated by San Lang and consistent with China’s macroeconomic logic. A month earlier, in his macroeconomic analysis article titled “March PMI Appears ‘Rebounding’—So Why Are Bosses Still Hesitant to Hire?”, San Lang pointed out that although the March PMI showed broad-based improvement and official data and media hailed a ‘manufacturing rebound’, this was primarily a seasonal rebound following the Spring Festival—not a genuine trend improvement. The employment index actually declined rather than rose; rising prices stemmed from war-related costs rather than demand; and overseas orders may have reflected tariff-avoidance investments. He cautioned readers against mistaking this rebound for real recovery, urging attention instead to authentic employment and domestic demand signals. The National Bureau of Statistics’ Thursday release of the April PMI largely confirmed San Lang’s judgment. In April, the manufacturing PMI stood at 50.3%—still within the expansion zone, but down 0.1 percentage points from March’s 50.4%, leaving it just one step away from the critical threshold of 50%. Should external demand orders weaken further, manufacturing sentiment will likely slip back into contraction. By enterprise size: large-enterprise PMI dropped sharply by 1.4 percentage points to 50.2%; medium- and small-enterprise PMIs rose by 1.5 and 0.8 percentage points respectively, reaching 50.5% and 50.1%. By sub-index: the production index edged up 0.1 percentage points to 51.5%, while the new orders index fell 1.0 percentage points to 50.6%. This suggests manufacturing output accelerated slightly—but mainly on the basis of existing orders—and cannot be sustained due to the marked decline in new orders. The construction sector’s vitality continues its historic contraction trend. In April, the construction sector’s business activity index fell 1.3 percentage points to 48.0%. The primary driver behind this sharp decline was a steep 1.9-percentage-point drop in the construction sector’s new orders index—to 41.6%. In Q1, although fixed-asset investment grew 1.7% year-on-year—reversing the sharp contraction seen in H2 2025—this modest growth was driven almost entirely by a 13.9% YoY increase in equipment and instrument purchases. By contrast, building installation and engineering investment—which directly generates orders for construction firms—fell 0.4%. This is the main reason behind the sharp drop in construction orders. Service-sector vitality also declined markedly. In April, the services business activity index stood at 49.6%, down 0.6 percentage points from the previous month—returning to the contraction zone, which had been breached only temporarily in March after remaining in place since November last year. By industry: state-owned enterprise-dominated or -led sectors—including railway transport, postal services, telecommunications, broadcasting, and satellite transmission—registered business activity indices above 55.0%, indicating relatively high vitality. However, private-sector-dominated industries—including wholesale trade, retail, and residential services—registered indices below the 50% threshold, signaling weak market activity.

‘No revival in August, no turnaround in September’: PMI indices for all three sectors fall into contraction simultaneously; policy stimulus space narrows and outlook remains pressured.

Please remember to like and share! If you haven’t yet subscribed, please follow the ‘Mars Macroeconomics’ account—thank you! Executive Summary: In August 2026, China’s manufacturing and services PMI indices contracted for the second consecutive month, while the construction PMI entered its eighth consecutive month of contraction—the weakest level in the past 66 months. Weak domestic demand, the prolonged downturn in the real estate sector since mid-2021, and falling investment weighed on the economy, dragging Q2 GDP growth down to 4.3%—the weakest pace since the end of 2022. Although exports and select upstream industries provided some support, the imbalance between strong supply and weak demand intensified, rendering the traditional ‘seven-dead, eight-alive’ cyclical pattern obsolete. Policy stimulus space has narrowed, and prospects for a durable domestic demand recovery remain uncertain. On Monday, the National Bureau of Statistics released the August 2026 Purchasing Managers’ Index (PMI), underscoring the persistent chill in China’s macroeconomy—even amid summer heat. In August, manufacturing and services business activity contracted for the second consecutive month, while construction activity contracted for the eighth straight month—the lowest level since March 2022. This loss of momentum has intensified policy pressure to sustain low-speed economic growth. Domestic demand weakness, declining investment, and over five years of continuous real estate market deterioration since H2 2021 have dampened economic activity, causing China’s Q2 2026 GDP growth to slow to 4.3%—the weakest pace since late 2022. July data indicate deepening economic hardship at the start of H2: consumer spending nearly stalled, fixed-asset investment contraction accelerated, unemployment began rising, and growth relied increasingly on manufacturing and exports. I. The manufacturing PMI remained below the boom-bust threshold for the second consecutive month, at 49.8%. According to data from the National Bureau of Statistics, the August 2026 PMI stood at 49.8%—slightly higher than July’s 49.2% by 0.6 percentage points, but still marking the second consecutive month in contraction territory, and below the market consensus forecast of 50%. Sub-indices for production and new orders suggest some improvement in manufacturing supply and demand in August: the production index and new orders index rose from 49.9% and 48.5% in July to 50.4% and 50.6% respectively; new export orders also rebounded—from 49.6% in July to 50.1% in August—driven by a modest recovery in overseas demand following prolonged Middle East instability. However, the gap between the output price index and input price index—a key indicator of supply-demand dynamics—widened from −5.4 percentage points in July to −6.2 percentage points in August. This widening gap signals intensifying supply-demand imbalance: firms face greater difficulty passing on rising input costs to output prices, and weak demand is eroding corporate profits more severely. Another set of NBS data shows that industrial profits in July rose 11.2% year-on-year—the slowest growth rate so far this year. Moreover, virtually all of this year’s industrial profit growth stems from raw-material producers (up 55.2% YoY) and the semiconductor industry (up over 80% YoY). In contrast, profits for manufacturing sectors tied to final demand continue to decline—plunging deeper into difficulty. For example, furniture manufacturing profits collapsed by 58.2%. Meanwhile, sub-indices measuring actual industrial vitality—raw materials inventory and employment—remain in contraction territory.

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