The opening of the third quarter produced a sharp divergence in global manufacturing conditions. China's official manufacturing Purchasing Managers' Index fell to 49.2 in July, a five-month low and below the 50-point threshold that separates expansion from contraction, according to data from the National Bureau of Statistics. The reading missed all estimates in a Bloomberg survey of economists, whose median was 50.1. The contraction was driven by a slump in consumer-goods production, where the PMI dropped to 47.8 from 50.2 in June, while high-technology manufacturing held steady at 53.3. China's non-manufacturing sector, which covers services and construction, also fell into contraction territory in July, hitting its lowest level since December 2022, according to separate data from the same agency.

Elsewhere in Asia, factory activity remained firmly in expansionary territory. India's HSBC Manufacturing PMI slipped to 53.5 in July from 54.2 in June but stayed above the 50 mark, supported by robust export demand from markets including Canada, Egypt, Indonesia and the UAE. Supply-chain pressures eased, allowing firms to build finished-goods inventories at the fastest pace in more than 11 years. Input-cost inflation moderated to a five-month low, though firms continued to raise selling prices to protect margins. Employment growth slowed. In Southeast Asia, the S&P Global manufacturing PMI for the region rose to 52.8 in July from an 11-month low of 50.5 in June, with Thailand leading at 54.2 and all Asean economies except Myanmar recording expansion. Maryam Baluch, an economist at S&P Global Market Intelligence, said the sector appeared to have moved past the softer patch seen between March and June, when activity was still heavily affected by the Middle East conflict.

Russia's manufacturing sector also expanded, with the S&P Global PMI rising to 50.7 in July from 50.3 in June – the strongest reading since January 2025. Growth was driven entirely by domestic demand, as new export orders contracted at the sharpest pace since October 2022, which companies attributed to weaker demand from key international markets. Input-cost inflation accelerated to its fastest since January 2026, driven by fuel shortages and rising supplier prices, and firms passed on higher costs to customers. Employment continued to decline, albeit at the slowest rate in four months, as companies expressed uncertainty about the sustainability of order growth.

The next milestone to watch is the trajectory of trade tensions between China and its largest partners. According to reports from Chinese state media, Beijing has begun discussing with Washington the prospect of mutual tariff reductions on goods worth approximately $30 billion, while negotiations with the European Union over electric-vehicle tariffs remain stalled. Any escalation in these disputes could further weaken China's export-dependent high-tech sectors and deepen the current contraction.