China’s manufacturing and non-manufacturing sectors contract in July 2026

In July 2026, China experienced a contraction in both its manufacturing and non-manufacturing sectors, as reported by the National Bureau of Statistics (NBS). The Manufacturing Purchasing Managers’ Index (PMI) dropped to 49.2 from the previous month’s 50.3. This decline reflects a downturn in manufacturing activity, as the PMI below 50 indicates a contraction. Similarly, the Non-Manufacturing PMI decreased to 49 from 50.2 in the prior month, signaling a contraction in the service-related sectors. These indices suggest that both sectors are experiencing a slowdown, contrary to the anticipated stabilization, which was reflected in the consensus forecasts of 50 for both indices.

The contraction in China’s key economic sectors is likely to affect the USD/CNY exchange rate. Typically, weaker economic data can lead to a depreciation of the local currency, the Chinese yuan, as it signals reduced economic strength and may lead to market speculation about monetary easing by the central bank to stimulate growth. In this context, traders might expect a depreciation of the yuan against the US dollar, thereby exerting upward pressure on the USD/CNY exchange rate. Consequently, the USD/CNY could rise as global investors perceive the US dollar as a relatively safer and more stable currency in light of China’s economic contraction forecasts.

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