In September, China’s factory activity continued to contract for the fifth consecutive month, with the official manufacturing purchasing managers’ index coming in at 49.8. This was a slight increase from the previous months, but still below the 50 point threshold indicating expansion. High-tech and equipment manufacturing sectors were leading the way, showing signs of improvement. However, the Caixin PMI, which tends to focus more on exporters and private sector firms, fell to 49.3, indicating the sharpest contraction in 14 months. This was driven by declining demand and a weakening labor market.
The manufacturing sector in China has been facing headwinds, including a prolonged economic slowdown, property crisis, and Western restrictions on Chinese exports such as electric vehicles. The economic indicators have been disappointing, with industrial profits plunging by 17.8% in August and retail sales growing at a slower pace than expected. In response to these challenges, the Chinese government recently announced measures to boost economic growth, including a cut in the reserve requirement ratio for banks and a reduction in the seven-day reverse repurchase rate.
The People’s Bank of China and other top leaders are working to address the issues facing the economy, with President Xi Jinping leading a high-level meeting to discuss the need for stronger fiscal and monetary policy support. These efforts have led to a rally in Chinese equity markets, with last week being the best week in almost 16 years. However, experts caution that these measures will take time to have an impact, and restoring confidence among consumers and entrepreneurs will be a gradual process.
The latest PMI survey was conducted before the stimulus announcements were made, indicating that the effects of these measures may not be fully reflected in the data. Despite this, there is optimism that the government’s initiatives will help to stabilize the economy and encourage growth. The focus on boosting domestic demand and addressing key challenges facing the manufacturing sector could lead to a turnaround in the coming months. Overall, while the economic outlook for China remains uncertain, efforts are being made to support and revive the country’s growth momentum.
