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China’s manufacturing activity unexpectedly contracted in October, damping hopes of increasing momentum in the world’s second-largest economy.
The country’s official manufacturing purchasing managers’ index came in at 49.5 this month, missing forecasts and trailing a reading of 50.2 in September. A reading below 50 marks contraction against the previous month.
The contraction, which reversed last month’s return to expansion, marked a further blow for policymakers, who are under pressure to tackle a slowdown across the country’s economically critical property sector and jump-start lagging growth.
It also followed better than expected gross domestic product growth of 4.9 per cent year on year in the third quarter, which had raised hopes that China’s economy was turning a corner after low post-pandemic activity disappointed projections.
“Up until this latest data release, things were looking better,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
He added that the combined manufacturing and non-manufacturing data was “the worst on record, if you ignore Covid lockdowns” and suggested that the services sector was “barely growing at all”.
The non-manufacturing PMI on Tuesday came in at 50.6, remaining in expansionary territory but rising at its slowest pace this year. Economists polled by Bloomberg had forecast a reading of 52, after the gauge hit a figure of 51.7 in September.
Robert Carnell, head of Asia-Pacific research at ING, wrote in a note that the PMI figures came as a “slight shock” and suggested that the economy was “still struggling” despite the recent GDP figures.
China’s economy had been showing more signs of growth, expanding 1.3 per cent quarter on quarter, significantly ahead of the April-June rate of just 0.5 per cent.
China’s manufacturing PMI figures edged above the 50 mark in September after five consecutive months of decline, when disappointing trade, retail and property data had dashed expectations of a boom following the removal of pandemic restrictions in January.
The government has targeted 5 per cent economic growth for 2023, its lowest official target in decades.
The property sector has come under renewed focus in recent weeks, with Country Garden, once China’s largest private developer by sales, defaulting on its international debts.
A restructuring plan at Evergrande, whose default two years ago helped trigger a sector-wide liquidity crunch, was derailed at the last minute, with the company citing regulatory constraints.
Separate manufacturing and non-manufacturing indices from private data provider Caixin will be released on Wednesday.
The weaker official figures will add to pressure for more fiscal stimulus from Beijing. Policymakers have gradually eased monetary conditions, marginally cutting benchmark lending rates and relaxing some constraints on housing purchases that were designed to avoid overheating prices.
