On September 30th, both the official Chinese government and Caixin released the Purchasing Managers’ Index (PMI) for the manufacturing industry. The official PMI stood at 49.8%, below the expansion/contraction line for the fifth consecutive month, while the Caixin PMI was 49.3, a significant drop of 1.1% from the previous month, falling short of expectations.
The PMI uses 50 as the benchmark line, with values above indicating expansion and those below 50 signaling contraction in the manufacturing sector. According to the data released by the National Bureau of Statistics of China, the September PMI was 49.8%, remaining below the benchmark for five straight months.
When looking at the sub-indices that make up the manufacturing PMI, only the production index was above the threshold at 51.2%. The new orders index was 49.9%, raw material inventory index at 47.7%, employment index at 48.2%, and supplier delivery time index at 49.5%, all falling below the expansion/contraction line.
The non-manufacturing business activity index for September was 50.0%, dropping by 0.3% from August, indicating a slight decline in economic activity. The new orders index for September was 44.2%, reflecting a decrease in market demand, while the employment index at 44.7% showed a continued decline in labor market conditions.
Zhao Qinghe, a senior statistician at the National Bureau of Statistics Service Industry Survey Center, noted that the manufacturing industry’s price index remained low in September. The main material purchasing price index and factory price index were at 45.1% and 44.0% respectively, reflecting a continued downward trend due to factors such as insufficient demand and fluctuations in commodity prices.
On the same day, data released by Caixin and S&P Global showed the PMI for September at 49.3, dropping by 1.1 percentage points from August, falling below the benchmark line and lower than the analysts’ forecast of 50.5, marking the lowest value since August 2023.
Although the production index in September remained in the expansion zone, the rate of expansion narrowed. Enterprises reported that increased production was mainly for existing orders. The new orders index fell below the benchmark, reaching its lowest level since October 2022, with investment goods demand experiencing the most substantial decline.
Enterprises mentioned weakening potential demand, intensified competition, sluggish market conditions leading to a recent drop in new business volumes. External demand also contracted, with the new export orders index remaining in contraction territory for the second consecutive month, hitting a 13-month low.
Wang Zhe, a senior economist at Caixin Insight, stated that the manufacturing business sentiment in September declined, experiencing slight supply expansion, significant demand contraction, pressure from external demand, and challenges in employment. Logistic delays led to passive inventory additions, increasing deflationary pressures, with business optimism falling to near-record lows.
The lack of domestic demand, significant employment pressure, weak optimism, and consumption constraints indicate a challenging path towards achieving the economic growth target for the year. Additionally, the service industry PMI dropped to 50.3 in September, the lowest since October 2023, reflecting a notable decline in market optimism amid concerns about economic uncertainty.
The People’s Bank of China announced a series of monetary and real estate relaxation policies last Tuesday, September 24th. Subsequently, the top Chinese leadership held a meeting on the 26th, pledging more support for the economy.
Analysts at BCA noted persistent deflationary pressures and prevailing pessimism among households, private enterprises, and local government officials, suggesting that additional measures may be necessary to generate a cyclical recovery.
Considering the significant role of the real estate sector in China’s economic challenges, inventory reduction remains crucial. Analysts suggest that the government should focus on providing better social welfare to enhance consumption, break the cycle of debt deflation, and address investment that may exacerbate supply-demand imbalances.
Duncan Wrigley, an economist at Pantheon Macroeconomics, pointed out that there are no signs indicating substantial reform efforts by the Chinese authorities to redirect more national resources towards social security reforms. The current economic situation is prompting calls for more decisive actions to bolster the economy and address the prevailing challenges.