China sees first sign of manufacturing recovery after stimulus blitz
BEIJING – China’s manufacturing activity expanded for the first time in six months and services picked up in October, indicating that Beijing’s boldest stimulus measures since the Covid-19 pandemic are helping the battered economy turn a corner.
The official manufacturing purchasing managers’ index (PMI) rose to 50.1 in October from 49.8 in September, the National Bureau of Statistics said on Oct 31, just above the 50-mark separating growth from contraction and beating a median forecast of 49.9 in a Reuters poll.
In a further encouraging sign, the non-manufacturing PMI, which includes construction and services, rose to 50.2 in October, after it dropped to 50 in September.
Policymakers are banking on a last-ditch stimulus effort announced in late September to pull economic growth back towards 2024’s roughly 5 per cent target and kick lending and investment back into gear, as a sharp property market downturn and frail consumer confidence continue to deter investors.
“This is primarily an indication of the early impact of the higher fiscal support, enabled especially by an acceleration in government bond issuance,” said senior economist Xu Tianchen at the Economist Intelligence Unit. “There was a record amount of such issuance in August-September, which translated into fiscal spending.”
China’s growth is important to Singapore as the country is Singapore’s single biggest export market.
The mood in China’s manufacturing sector has been depressed for months by tumbling producer prices and dwindling orders, with the industry plagued by the same lack of confidence that has held back investors and domestic consumers.
Signs of recovery
There are early signs, however, that Beijing has switched into a higher stimulus gear to prop up the world’s second-largest economy and that confidence is slowly building.
China is considering approving in November the issuance of more than 10 trillion yuan (S$1.86 trillion) in extra debt in the next few years, Reuters reported on Oct 29, which would primarily be used to help local governments address off-the-books debt risks.
Youth unemployment eased in September, suggesting that measures such as employment subsidies aimed at encouraging firms to absorb millions of fresh graduates are having some effect.
Meanwhile, retail sales and factory output sales beat forecasts in September, suggesting that demand is beginning to make a comeback.
“50.1 is the smallest possible expansion for the PMI but, nonetheless, bucks expectations for continued contraction and is a positive sign that the small bounce-back of industrial production that we saw in September should continue,” said Mr Lynn Song, chief economist for Greater China at ING.
“Moving forward, we’ll need to see if the stimulus roll-out can lead to a recovery of domestic demand to offset potentially softer external demand,” he added.
China’s exports, a lone bright spot, faded in September and the economy grew at the slowest pace since early 2023 in the third quarter.
China economists have previously noted how sentiment-based polls often present a gloomier picture than hard data indicators. In the poll, one in three respondents forecast that factory activity broke back into expansion in October.
“The PMIs have overstated the weakness in China’s economy during the past year. But they still provide some sense of the direction of travel,” said Mr Julian Evans-Pritchard, head of China economics at Capital Economics.
“The good news is that, after turning a corner in September, the official surveys point to further improvement in October, with an acceleration in manufacturing and services activity more than offsetting a further slowdown in construction,” he added.