China's substantial manufacturing sector has faced a contraction due to weakened demand, emphasizing the need for stronger policy support to stimulate economic growth.
According to China's National Bureau of Statistics (NBS), the official manufacturing Purchasing Managers’ Index (PMI) declined from 50.2 in September to 49.5 in October, falling short of the 50.2 estimate from a Reuters poll of analysts.
Simultaneously, the non-manufacturing PMI, which encompasses the services and construction sectors, decreased to 50.6 this month, marking its lowest level since China eased Covid-19 restrictions in December 2022. This data underscores the challenges and the potential impact on China's economic landscape.
The Purchasing Managers' Index (PMI) is a vital monthly economic indicator, with a reading above 50 denoting expansion and figures below indicating contraction.
The October manufacturing PMI was notably influenced by a reduced number of working days during the Golden Week holiday, spanning from September 29 to October 6, as per the National Bureau of Statistics (NBS). This contraction underscores China's economic vulnerability, facing challenges such as subdued consumer spending, a deepening property crisis, and weakened global demand.
The manufacturing sector, representing 28% of the gross domestic product, had seen five consecutive months of contraction since March. September offered a glimmer of hope as it finally expanded, hinting at a potential economic upturn.
Zhiwei Zhang, President and Chief Economist for Pinpoint Asset Management, noted, "The unexpected drop in manufacturing PMI underscores the turbulent path to recovery in China, given persistently feeble domestic demand.
"The NBS survey revealed a decline in new factory orders for October, signaling reduced demand, while the employment sub-index depicted a diminishing workforce in factories.
Simultaneously, the decline in the non-manufacturing PMI indicated that pent-up demand for travel and gatherings waned swiftly following the Golden Week holiday, as observed by Nomura analysts.
Nationwide, property relaxation measures are seeing widespread implementation. Recent weeks have witnessed multiple cities, among them Hangzhou and Liuzhou, easing restrictions on homebuying.
In a significant move on Monday, President Xi Jinping initiated a pivotal financial policy gathering in Beijing. This event marks the first of its kind in six years and is dedicated to finding strategies to boost economic growth while addressing financial risks, particularly the mounting debt levels of local governments.
Zhaopeng Xing, a senior China strategist at ANZ Research, emphasized in a research report on Tuesday that "De-risking local governments will require a combination of proactive fiscal and accommodative monetary policies going forward.
"He anticipates that the People’s Bank of China will reduce the reserve requirement ratio in the fourth quarter, releasing an estimated 1.2 trillion yuan ($164 billion) into the financial system.
Source: CNN
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