China’s factory activity contracted for the fifth consecutive month in September, though at the slowest pace in five months, and service activities contracted for the first time in 2024 as the world’s second-largest economy struggles to revive its growth momentum.
The official manufacturing purchasing managers’ index (PMI) came in at 49.8 in September, according to data released by the National Bureau of Statistics (NBS), picking up from 49.1 in the previous month, in line with market expectations. A PMI reading above 50 indicates expansion, while a reading below that level points to contraction.
The manufacturing sector’s production returned to expansion, while new orders, raw material inventory, employment and suppliers’ delivery were in the contractionary territory.
The production sub-index reached 51.2, picking up from 49.8 in the previous month, and the sub-index for new-orders reached 49.9, improving from 48.9 in August, showed the data.
Despite the improvement in the overall demand, external demand contracted at the fastest pace in five months. The sub-index for new export orders slipped by 1.2 percentage point to 47.5, marking the lowest reading since March, while the sub-index for imports fell by 0.7 percentage points to 46.1, indicating that the issue of insufficient demand became more prominent.
Despite the production expansion, insufficient demand continued to constrain employment, with the sub-index for employment remaining in the contraction at 48.2, though picking up slightly by 0.1 percentage point.
Due to insufficient demand and the fluctuations of some commodities’ prices, the purchase prices of raw materials and the factory-gate prices of finished products declined further in September, though the two sub-indexes picked up in the contractionary territory, rising by 1.9 and 2 percentage points, respectively, to 45.1 and 44.
The sub-indexes for the purchase prices of major raw materials and the factory-gate price in industries such as petroleum, coal, and other fuel processing, as well as ferrous metal smelting and rolling processing, have remained low for the second consecutive month, said Zhao.
Due to weak market demand, businesses remained reluctant to make purchases. The sub-index for factories’ purchasing volume fell by 0.2 percentage points to 47.6, marking a new low since 2023 for the second consecutive month. That, coupled with production expansion, sent raw material inventories lower, though at a slightly slower pace, with the sub-index rising by 0.1 percentage points to 47.7, while the sub-index for finished goods inventory fell by 0.1 percentage points to 48.4.
Manufacturers remain in September, with the sub-index for business expectation holding steady at 52.0.
Energy-intensive companies remain the main drag on the manufacturing PMI. Among major industries, the PMI for high-tech manufacturing and equipment manufacturing industries stood at 53.0 and 52.0, respectively, up by 1.3 and 0.8 percentage points, continuing to show strong momentum; the consumer goods industry’s PMI rose by 1.1 percentage points to 51.1; however, the PMI for energy-intensive industries fell by 0.2 percentage points to 46.6, slipping deeper into contraction.
The NBS data also showed that China’s non-manufacturing PMI fell by 0.3 percentage points to 50 in September. In breakdown, the sub-index for the service sector fell by 0.3 percentage points to 49.9, slipping into contraction for the first time this year, while the sub-index for the construction sector rose slightly by 0.1 percentage points to 50.7, indicating faster activities.
Due to end of the summer travel season and the impact of extreme weather such as typhoons in some regions, business activities in rail transport, water transport, and cultural, sports, and entertainment fell into the contraction zone. Market confidence in the service sector continued to decline marginally, with the business expectations falling by 0.8 percentage points to 54.6.
In the construction sector, the sub-index for residential construction ended its two-month contraction and returned to expansion in September, while the sub-index for the civil engineering construction industry remained at a relatively high level above 52.0.
China’s composite PMI, which tracks both the manufacturing and the services sectors, reached 50.4 in September, picking up from 50.1 in the previous month, showed the data.
The PMI data is the latest in a slew of disappointing Chinese economic signposts as the economic power still struggles with weak domestic demand, a downturn in the housing sector and rising unemployment.
China’s industrial profits in August plunged by 17.8% from a year ago, marking the steepest decline in more than a year. China’s retail sales, industrial production and fixed-asset investment all grew at a slower pace than anticipated last month.
Last week, The Chinese government intensified its efforts to shore up the lackluster economic growth. The People’s Bank of China cut the reserve requirement ratio or RRR by 50 basis points and lowered the seven-day reverse repurchase rate, a primary policy rate from 1.7% to 1.5%, a drop of 20 basis points.
The Central Committee of the Politburo, the top decision-making body of the Chinese Communist Party, on Thursday convened a high-level meeting chaired by President Xi Jinping, where they called for an end to the property decline, and emphasized the need for stronger fiscal and monetary policy support.