China's manufacturing activity has contracted for the third consecutive month, with the Purchasing Managers' Index (PMI) falling to 49.4 in July, down from 49.5 in June.

The official Non-Manufacturing PMI also showed a decline, dropping to 50.2 in July from 50.5 in June, indicating the weakest pace since November 2023, largely due to reduced new orders and employment.

The Chinese economy's growth in the second quarter was slower than anticipated, with retail sales growth hitting an 18-month low amid deflationary pressures.

This slowdown in domestic consumption is closely linked to falling property values, which account for approximately 70% of household wealth.

In an effort to stimulate the economy, China's state planner announced an allocation of 300 billion yuan (about $41.40 billion) for consumer trade-in programs, although this amount is viewed as insufficient for meaningful recovery.

Analysts attribute the decline in manufacturing to seasonal production issues, insufficient market demand, and extreme weather conditions.

Despite the weak economic data, the Shanghai Composite index rose by 1.2%, as investors anticipated potential stimulus measures from the government.

Geopolitical tensions with the U.S. and EU are further complicating China's economic landscape, threatening foreign trade and adding to the challenges faced by the manufacturing sector.

Chinese authorities are increasingly worried about the economy's performance, struggling to meet the ambitious growth target of 5% for 2024.

The Politburo has warned of tough months ahead and is planning measures to restore confidence in financial markets and boost government spending.

In response to these economic challenges, Chinese leaders, including President Xi Jinping, are convening to devise strategies aimed at boosting consumption and alleviating pressure on the struggling real estate sector.