China's factory activity contracts at fastest pace in three months as October PMI falls to 49.3
China's official manufacturing purchasing managers' index fell to 49.3 in October from 50.1 in September, missing forecasts and returning to contraction as soft demand, including for exports, weighed on factories.
China's factory activity shrank in October at its fastest pace in three months, an official survey showed on Saturday, underlining the pressure on the world's second-largest economy as it enters the final quarter of the year.
The official manufacturing purchasing managers' index (PMI) fell to 49.3 in October from 50.1 in September, according to data from the National Bureau of Statistics. The reading missed the 50.0 forecast in a Reuters poll of economists and the 49.9 median in a Bloomberg survey, and it dropped back below the 50 mark that separates expansion from contraction after only a brief rebound into growth territory.
The PMI is compiled from purchasing managers' reports on whether conditions improved, worsened or stayed the same compared with the previous month, covering areas such as new orders, output and employment. A reading above 50 signals expansion, while one below 50 indicates contraction, so October's figure points to factories broadly shrinking again.
The details of the survey were weak across the board. The production subindex fell to 49.8 in October from 51.7 in September, while the subindex for total new orders dropped to 49.4 from 50.5. New export orders slipped to 48.7 from 50.0, a sign that overseas demand, which had held up in September, turned softer during the month.
The weakness was not confined to manufacturing. China's non-manufacturing PMI, which covers services and construction, declined to 49.7 in October from 50.2 in September. Within that gauge, the services subindex eased to 50.0 from 50.2, while construction dropped more sharply to 48.0 from 50.3.
The deterioration suggests the economy lost some traction at the start of the fourth quarter, following a modest rebound in the previous three months. Beijing is aiming to keep growth on track towards its annual target of around 4.5 to 5 per cent, and the October figures increase the pressure on policymakers to provide further support.
The government has already stepped up targeted measures in recent weeks, including more credit support for small businesses and consumers, mortgage subsidies for some homebuyers and additional bond quotas for local governments. Construction on major infrastructure projects has also been rolled out, and officials have signalled a willingness to introduce further measures if necessary.
The data landed as China hosted a run of high-level European visitors in Beijing. President Xi Jinping met German President Frank-Walter Steinmeier on Friday, urging Germany to pursue a rational, pragmatic and friendly policy towards China, while Premier Li Qiang told the German leader that China was willing to import more high-quality German products and to expand cooperation in autos, chemicals, artificial intelligence, digital and green industries.
Trade tensions form the backdrop to the slowdown. Brussels has warned it will use every available means to remedy its widening trade deficit with China, and Germany, along with France, has proposed that the European Union enact a new rapid-action measure against countries that harm it. Steinmeier warned during his visit that China's drive for greater economic self-sufficiency should not come at the expense of other markets.
Economists will now watch whether the October dip proves a brief setback or the start of a longer soft patch. The next readings, together with any fresh stimulus announcements from Beijing, will show whether policymakers can steady demand at home while export markets remain uncertain, and whether the economy can still finish the year close to its growth target.
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