The world’s second-largest economy remained on shaky ground last month, one key indicator suggested, with China’s policymakers now pinning their hopes on a sweeping new stimulus package.
Factory production levels may have weakened for the fifth straight month, according to the Chinese statistics bureau’s official Purchasing Managers’ Index (PMI) for September.
A PMI reading above 50 indicates industry expansion compared to the previous month, while a score below 50 signals contraction. The headline PMI for September came in at 49.8, indicating contraction, though it showed slight improvement from August’s reading of 49.1.
Since September 2023, the PMI has only exceeded 50 in three months, peaking at a modest 50.8 in March.
The PMI composite index is widely regarded as a barometer of economic activity within the sector. It is calculated from five weighted sub-indices based on responses from industry purchasing managers in monthly surveys.
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Among these sub-indices, production was the only one to show clear growth, with output rising to 51.2 in September, up from 49.8 in August. This suggests that manufacturing output expanded despite other areas of weakness.
New orders saw some improvement but remained in contraction territory at 49.9, up from 48.9 the previous month, signaling that demand is still sluggish.
Supplier delivery times dipped slightly from 49.6 to 49.5. While this may indicate faster deliveries, typically a positive sign, it could also suggest softening demand as suppliers are able to meet orders more easily.
Inventories of finished goods stood at 48.4, down by 0.1 points from August, which could mean that businesses are either seeing demand outpace supply or are deliberately keeping inventories lean due to cautious market outlooks or slower production.
The employment sub-index remained weak at 48.2, marking its 13th consecutive month of contraction, reflecting persistent labor market challenges within the sector.
Meanwhile, the PMI for China’s non-manufacturing sector, which includes services and construction, registered 50.0 in September, a slight decline from 50.3 in August and the lowest level since the same period last year.
Chinese analysts noted that, while the manufacturing sector remains below the critical 50-point threshold, September’s PMI reading was the highest since April.
State media cited NBS statistician Zhao Qinghe, who stated that the latest data reflects some improvement in overall economic conditions and a pick-up in business production.
Despite the PMI figures, policymakers have been rolling out various initiatives earlier this year aimed at boosting domestic demand, which has struggled to recover after China’s strict pandemic lockdowns ended in late 2022.
These measures have included trade-in programs encouraging consumers to upgrade older electronics and home appliances. Additionally, Beijing has also introduced approximately $43 billion in long-dated bonds aimed at supporting indebted local governments and drive growth through large-scale infrastructure projects.
In a bid to further stimulate the economy, China’s top financial regulators and the central bank last week unveiled their most ambitious stimulus package since the pandemic.
Among the measures are cuts to the reserve requirement ratio (RRR) for banks, freeing up more capital for loans to businesses and consumers. Lenders were also directed to reduce mortgage rates for existing home loans by October 31, aimed at easing the financial burden on homeowners as China continues to grapple with its prolonged real estate crisis.