China’s Manufacturing Contracts to 49.3 in October, Below Reuters Forecast
Key Facts
China’s official manufacturing Purchasing Managers’ Index fell to 49.3 points in October from 50.1 in September, according to data released by the National Bureau of Statistics of China on 31 October. The reading was below the Reuters poll forecast of 50.0 points, returning the index to contraction after just one month above the 50 threshold separating contraction from expansion. The index had fallen to 49.8 in August before rebounding in September for the first time in three months. October’s decline means the improvement recorded the previous month did not last, as the survey showed weakness in both output and demand. Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, said, "Insufficient demand is increasing downward pressure on the economy."
The output index stood at 49.8 points in October, down 1.9 percentage points from the previous month, while the new orders index came in at 49.4 points after falling 1.1 percentage points, according to the National Bureau of Statistics. Both readings were below 50, reflecting simultaneous contraction in factory activity and orders for its products. New export orders also fell to 48.7 points from 50.0 in September, according to the Associated Press, moving from expansion into contraction. This follows a return to expansion in manufacturing in September, when the official index reached 50.1 points, compared with 49.8 in August. The bureau said some demand had been brought forward ahead of the National Day holiday, while a complex and changing international environment also contributed to the index’s decline.
Pressure was uneven across company sizes: the index for large companies stood at 50.2 points in October, above the expansion threshold despite falling 0.4 percentage points from the previous month. By contrast, the index came in at 48.4 points for medium-sized companies and 47.5 points for small companies, according to the National Bureau of Statistics, leaving both in contraction territory. The gap shows that the reading for large companies staying above 50 did not extend to smaller businesses. The non-manufacturing business activity index and the composite output index each stood at 49.7 points in October. The former fell 0.5 percentage points from the previous month, while the latter declined by a full percentage point, according to bureau data.
The decline in activity indexes coincided with a slowdown in China’s annual economic growth: gross domestic product grew 4.5% in the third quarter, compared with 4.3% in the second quarter, according to Reuters. In manufacturing, Chinese companies are shipping more goods abroad in search of buyers amid weak domestic demand, according to the Associated Press. China’s property sector has been in decline for years, the news agency reported, while the country’s trade surplus with the world is on track to exceed last year’s record of 1.2 trillion dollars, according to Reuters. These developments underscore the concurrence of weak domestic demand and companies’ reliance on export markets. Trade is expected to be on the agenda for an anticipated meeting between U.S. President Donald Trump and Chinese President Xi Jinping in mid-November on the sidelines of the APEC summit in Shenzhen, according to the Associated Press.
Attention turns on 2 November to the RatingDog manufacturing index, compiled by S&P Global and covering the private sector. A Reuters poll forecast the index at 51.6 points in October, compared with 52.1 in September. The index provides a parallel measure to the official survey, while its release will offer a way to track private companies’ performance after the official reading contracted in October. The business activity expectations index for industrial companies stood at 53.8 points in September, below July’s reading of 54.1 points, according to National Bureau of Statistics data. That earlier reading followed the official index’s return to expansion in September, before it fell again in October.