China's manufacturing contraction deepens as PMIs drag down markets

China's recent economic indicators reflect a significant slowdown in manufacturing activity. On July 31, 2025, the country released its manufacturing purchasing managers’ index (PMI), which recorded a reading of 49.3. This figure signifies a contraction for the fourth consecutive month, falling from June's reading of 49.7 and below the median forecast of 49.7. These figures contribute to concerns about the sustainability of economic growth as they indicate declining manufacturing productivity amid ongoing global and domestic challenges. In contrast to the manufacturing sector, the services sector appears to be stabilizing. The Non-Manufacturing PMI recorded a reading of 50.1, which indicates an expansion, although it is lower than the previous month's figure. This mixed performance reflects ongoing challenges faced by the manufacturing sector whilst showcasing resilience in service activities that could support overall economic recovery. However, analysts remain cautious as the overall numbers do not signal robust improvement. The stock market felt the effects of these economic announcements, with prominent companies such as Alibaba and Meituan experiencing declines. Specifically, Meituan's stock dropped by 4.55%, influenced by news that Amsterdam-listed Prosus would be selling its $4 billion stake in the company. The firm, which also has a historical connection to Alibaba, sold $250 million worth of shares overnight. The backdrop of this sale is an intensely competitive market environment for food delivery services that Meituan specializes in, compounded by market pressures and regulatory scrutiny. Despite these challenges, Mainland investors showed continued interest by being net buyers of Meituan and Alibaba, marking the second consecutive day of buying amid market weakness. To further stabilize the yuan, China's central bank, the People’s Bank of China (PBOC), implemented measures to maintain its value against the US dollar. These actions highlight an ongoing effort to reinforce the stability of the Chinese currency, particularly significant given the backdrop of fluctuating economic indicators and external market pressures. The PBOC's interventions and the responsiveness of Mainland investors indicate a complex market landscape as stakeholders react to economic signals and aim for long-term stability amidst uncertainties.