China's Factory Activity Growth Slows Down in September

By IndraStra Global News Team

Cover Image Attribute: Automated robotic arms are used to construct electric vehicles on the production line at a Jinhua, Zhejiang province, China factory. / Source: Reuters

China's manufacturing sector experienced a slowdown in growth during the month of September, as per a private-sector survey published on Sunday. This deceleration has been attributed to sluggish external demand despite an increase in production levels. The Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI) reported a reading of 50.6 for September, down from 51.0 in the previous month, falling short of analysts' predictions of 51.2. It's important to note that the 50 index point mark is the threshold separating expansion from contraction.
While the world's second-largest economy has shown some signs of stabilization due to recent moderate policy measures, various challenges cast shadows over its outlook. These challenges include a property market downturn, declining exports, and elevated levels of youth unemployment.
The publication of this survey closely follows the release of China's official PMI, which indicated that factory activity expanded in September, marking the first such expansion in six months. This has contributed to a growing body of evidence suggesting that the Chinese economy may have started to bottom out.
According to the Caixin PMI data, factory output and new orders maintained their expansionary positions in September. However, external demand remained weak, with the export orders index contracting for the third consecutive month. Wang Zhe, a senior economist at Caixin Insight Group, commented, "The economic recovery has yet to find a solid footing, with insufficient domestic demand, external uncertainties, and pressure on the job market."
Furthermore, the confidence of factory owners regarding the year ahead reached a 12-month low. The survey also revealed that producers of consumer goods, investment goods, and intermediate goods reduced their workforce.
Input costs experienced their most significant increase since January, primarily driven by rising prices of chemicals, crude oil, and industrial metals. This adds to the challenges faced by Chinese policymakers, who are tasked with reviving stalled economic growth. Analysts are calling for more aggressive measures in addition to the piecemeal support introduced in recent months.
Wang emphasized, "The implementation and effectiveness of the economic stabilization policies should be the next focus of attention. More effort may be needed to increase employment and income." In September, the central bank reduced the required reserve ratio for banks in a move to support growth.
S&P Global Ratings, in a research note, mentioned, "We do not anticipate substantial fiscal or monetary stimulus by Chinese authorities in the coming months." This stance signifies that while there might be more challenges for corporations and banks in the near term, China is continuing its shift away from debt-driven growth.

NOTE: A separate PMI report by Caixin/S&P Global, also published on Sunday, revealed that China's services sector experienced its slowest growth pace this year in September.
With reporting by Caixin Global, Reuters, and S&P Global

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