China’s manufacturing sector contracted for the fifth consecutive month in September, although the decline was less severe than expected, offering a glimmer of hope for the struggling economy.
The official manufacturing Purchasing Managers’ Index (PMI) came in at 49.8, up from 49.1 in August, and slightly better than the 49.5 forecast by economists polled by Reuters. Despite the improvement, the reading remains below the 50-point mark, indicating continued contraction in factory activity.
The PMI data, released by the National Bureau of Statistics (NBS) on Monday, reflects ongoing challenges in China’s manufacturing sector as domestic demand weakens due to a prolonged economic slowdown and property market crisis. Zhao Qinghe, a senior statistician at NBS, noted that while manufacturing activities have picked up, high-tech and equipment manufacturing continue to lead the recovery.
Meanwhile, the Caixin PMI, a private survey with a greater focus on smaller firms and exporters, fell to 49.3 from 50.4 in August, marking the sharpest contraction in 14 months. Analysts attribute this decline to decreasing demand and a weakened labor market.
Headwinds for China’s manufacturing sector have been compounded by Western export restrictions, particularly on electric vehicles, and the downturn in the housing sector, which has further dampened domestic demand. Industrial profits in August also fell sharply by 17.8% year-on-year, adding to concerns about the country’s economic trajectory.
In response to these challenges, Chinese policymakers have implemented a series of stimulus measures. The People’s Bank of China recently cut key interest rates and reduced the reserve requirement ratio for banks to stimulate lending. Additionally, the government has pledged to provide more robust fiscal support, including efforts to stabilize the property market and boost consumer confidence.
Despite these efforts, the services sector showed signs of weakness, with the official non-manufacturing PMI falling to 50 from 50.3 in August, signaling a slowdown in activity. Analysts believe that more aggressive stimulus may be needed to meet the government’s growth target of around 5% for 2024.
