China’s Manufacturing Activity Contracts, Private Survey Shows

2023-11-01 10:51

China’s manufacturing activity contracted in October, according to a private survey, signaling that the economic recovery is losing

China’s manufacturing activity contracted in October, according to a private survey, signaling that the economic recovery is losing momentum and pressuring policymakers who are trying to shore up growth.

The Caixin manufacturing purchasing managers’ index fell to 49.5 from 50.6 in September, missing economists’ forecast of 50.8. The 50 line separates expansion from contraction.

The data mirrored the official reading from the National Bureau of Statistics released just Tuesday, which also showed factory activity slipping back into contraction at 49.5. The disappointing numbers have stoked concern about the fragility of the economic recovery and fueled calls for more policy support.

Investors have been looking for evidence that China’s recent stimulus measures are shoring up an economic growth that has been challenged this year by weak consumer and business confidence and an ongoing property crisis. The government this month announced more support for the economy, including issuing extra sovereign debt and raising the budget deficit ratio.

Economists have said the weaker PMI figures on Tuesday reinforced the case for additional stimulus to put growth on firmer footing. Possible measures include raising the budget deficit for 2024, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management Co.

The People’s Bank of China may cut the amount of cash lenders must hold as reserves, known as the reserve requirement ratio, in the coming weeks to help fund government bond sales. It also has an opportunity to cut the interest rate on its one-year policy loans and add further liquidity in mid-November, as 850 billion yuan ($116 billion) of the medium-term lending facility is set to mature.

The Caixin survey focuses on small and more export-oriented firms, while the official gauge examines mainly larger, state-owned companies. The Caixin survey has outperformed the official gauge a few months this year.

The sample size of the two polls is also different: the Caixin report compiled by S&P Global is based on a survey pool of around 650 private and state-owned manufacturers. The official PMI is based on a survey of 3,200 companies.