Page 20 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

4. China’s economic activity loses momentum as August PMI signals slower growth

China's economic activity showed renewed signs of weakness in August 2026, with manufacturing and
services activity losing momentum amid subdued domestic demand and continued pressure on the
world's second-largest economy. The latest business surveys indicate that the recovery remains uneven,
with weaker factory activity and softer demand raising concerns about the strength of China's growth
momentum during the second half of the year.

The slowdown in manufacturing activity is particularly significant given the sector's importance to China's
broader economy and global trade. Weaker new orders and softer production indicate that domestic
demand remains insufficient to provide a strong and sustained impetus to industrial activity. Export-
oriented manufacturers also continue to operate against a challenging backdrop of evolving trade policies,
tariffs and uncertainty surrounding global demand.

The services sector has provided some support to overall activity, but its expansion has also moderated.
This suggests that the weakness is becoming broader than a manufacturing slowdown alone, with
households and businesses remaining cautious about spending and investment. The moderation in
services activity also highlights the difficulty of achieving a stronger consumption-led recovery while
confidence and domestic demand remain subdued.

The latest data reinforce concerns surrounding the sustainability of China's growth momentum. While the
economy continues to benefit from strong manufacturing capabilities, technology investment and exports
of high-value products, these strengths have not been sufficient to fully offset softer domestic
consumption and investment. The authorities therefore face the challenge of supporting demand while
simultaneously addressing longer-term structural issues affecting the property sector, household
confidence and private investment.

China's slowdown also has wider implications for the global economy. As one of the world's largest
manufacturers and trading economies, weaker Chinese domestic demand could reduce import demand
for commodities, intermediate goods and consumer products, while continued strength in Chinese
exports could intensify competitive pressures in international markets. At the same time, slower Chinese
growth could reinforce the ongoing shift in global supply chains towards other Asian manufacturing hubs,
particularly ASEAN economies.

The August PMI data therefore point to a more challenging second half of 2026 for the Chinese economy,
with the balance between strong industrial and technology-related capacity on one hand and relatively
weak domestic demand on the other remaining central to the outlook. Sustaining growth will increasingly
depend on measures that strengthen household consumption, restore private-sector confidence and
support investment, while maintaining momentum in strategic sectors such as advanced manufacturing,
technology and green industries.

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