China's manufacturing sector is showing tentative signs of recovery, as new data highlights an upswing in both production and domestic demand. October marks the first time in six months that China's manufacturing activity has expanded, reflecting positive outcomes from Beijing’s latest round of stimulus measures. In response to ongoing challenges such as weak consumer confidence and a struggling property sector, Chinese policymakers implemented robust fiscal policies in September aimed at stimulating economic growth. These initial signs of improvement suggest the world's second-largest economy may be finding its footing, albeit cautiously.
A Modest Manufacturing Expansion
The National Bureau of Statistics reported that China’s purchasing managers' index (PMI) rose to 50.1 in October, inching above the crucial 50-point threshold that differentiates expansion from contraction. This increase, although modest, was better than economists' median expectations of 49.9, as predicted in a Reuters poll. Similarly, the non-manufacturing PMI, covering both construction and services, edged up to 50.2 from 50.0 in September.
Despite the positive PMI, analysts caution that the recovery is fragile, with growth coming after prolonged declines in production output and consumer demand. However, this uptick provides some assurance that Beijing's fiscal and economic strategies are beginning to pay off. Xu Tianchen, a senior economist at the Economist Intelligence Unit, explains that increased government bond issuance has been a significant contributor to this slight rebound. “The record government bond issuance in August and September has provided fiscal spending support that the manufacturing sector desperately needed,” Xu said.
A Broader Stimulus Strategy to Boost Economic Confidence
Amid global economic uncertainties, Chinese authorities are deploying an aggressive fiscal strategy to support growth. Reports indicate that China is considering a substantial new debt issuance plan, valued at over 10 trillion yuan ($1.40 trillion), aimed at stabilizing local government finances and alleviating the burden of hidden debt risks. This measure, if approved, is expected to strengthen local government projects, thereby boosting the construction and service sectors as well.
In the face of declining youth employment rates, which had been a major economic concern earlier this year, the government has rolled out employment incentives for companies. These subsidies are helping ease job market pressure, especially for fresh graduates, which in turn supports overall consumer demand. In September, youth unemployment showed signs of improvement, lending further support to the idea that government interventions are beginning to stabilize key economic metrics.
Retail Sales and Industrial Output Exceed Forecasts
A critical factor in this tentative recovery is the gradual revival of domestic demand. October data reveals that both retail sales and industrial output performed better than anticipated, signaling that consumer demand might be rebounding. Retail sales have benefited from improving consumer sentiment, while factory output’s resilience suggests that local industries are beginning to adjust to market shifts.
Lynn Song, ING's chief economist for Greater China, interprets the PMI expansion of 50.1 as a cautious yet encouraging sign for the country’s manufacturing sector. "While 50.1 represents minimal growth, it defies expectations for continued contraction and signals a potential continuation of the production uptick we saw in September," Song noted. She emphasized the importance of sustaining domestic demand to offset weakening export markets, which previously served as a key economic driver.
Challenges in External Demand as Exports Continue to Weaken
China’s export sector has been a consistent pillar of economic stability, yet recent data indicates that external demand is weakening. China’s exports saw a decline last month, partly due to global economic uncertainties and the ongoing geopolitical tensions. The third-quarter economic growth, at its slowest rate since early 2023, further underscores the impact of declining exports on China’s overall growth.
Export dependency has been a double-edged sword, especially as other major economies face their own challenges. Global conditions, ranging from inflationary pressures in Western markets to geopolitical complexities, have created a more volatile environment for China’s export-based economy. With international demand dwindling, China’s pivot towards strengthening domestic consumption has become more critical than ever.
Mixed Responses from Manufacturing Sectors
Although large enterprises have shown a noticeable improvement, with their PMI rising to 51.5 from 50.6, medium-sized firms have only seen marginal growth, and smaller firms remain in contraction. This disparity highlights the unique pressures smaller enterprises face in an economy transitioning from heavy reliance on exports to a more balanced mix of export-driven and domestic demand.
Julian Evans-Pritchard, head of China Economics at Capital Economics, points out that sentiment-based surveys can often reflect a gloomier outlook than actual data suggests. "The PMIs tend to overstate China’s economic weakness, yet they provide valuable insight into economic direction," he stated. This past year, China’s PMIs have consistently reflected cautious optimism, and the October data appears to affirm a positive shift as the country moves deeper into the fourth quarter.
Sustaining the Recovery: Key Hurdles Ahead
For China’s economic recovery to gain momentum, domestic demand must remain strong, and business confidence must continue to improve. The industrial sector, although showing signs of revival, still struggles with steep declines in industrial profits, which fell sharply in September, marking the steepest monthly drop this year. This reflects the complex challenges industries face, ranging from low demand to high input costs.
An additional concern is that new export orders, a component within the PMI, declined further in October. On a positive note, domestic new orders rose to 50.0, reflecting an upswing in local demand and possibly suggesting that consumer confidence within China is beginning to stabilize. Analysts believe that if this trend persists, it could offset some of the weaker external demand and provide a more sustainable growth path.
Macroeconomic researcher Zhou Maohua from China Everbright Bank noted, “The manufacturing sector's recovery in October is a good start for the fourth quarter.” However, the strength of this recovery will depend on the Chinese government’s ability to effectively manage policy transitions and build a more resilient economic framework.
Looking Ahead: Policy Adjustments and Economic Outlook
China’s government appears poised to continue fine-tuning its economic policies in response to fluctuating market conditions. In addition to financial stimulus and bond issuance, policymakers are considering structural reforms aimed at promoting entrepreneurship and innovation within key industries. By supporting small- and medium-sized enterprises (SMEs) with targeted assistance, the government hopes to diversify economic growth sources and strengthen the broader industrial ecosystem.
Observers believe that as the year progresses, China’s economic outlook may further improve if domestic demand can compensate for global uncertainties. The government’s strategy of fostering local economic activities, addressing hidden debt, and promoting consumption is geared toward achieving this year’s growth target of approximately 5%. Although the path to full recovery remains challenging, the steps taken so far reveal a clear determination to stabilize and support China’s economic resilience in an unpredictable global landscape.
(Source:www.asianikkei.com)
A Modest Manufacturing Expansion
The National Bureau of Statistics reported that China’s purchasing managers' index (PMI) rose to 50.1 in October, inching above the crucial 50-point threshold that differentiates expansion from contraction. This increase, although modest, was better than economists' median expectations of 49.9, as predicted in a Reuters poll. Similarly, the non-manufacturing PMI, covering both construction and services, edged up to 50.2 from 50.0 in September.
Despite the positive PMI, analysts caution that the recovery is fragile, with growth coming after prolonged declines in production output and consumer demand. However, this uptick provides some assurance that Beijing's fiscal and economic strategies are beginning to pay off. Xu Tianchen, a senior economist at the Economist Intelligence Unit, explains that increased government bond issuance has been a significant contributor to this slight rebound. “The record government bond issuance in August and September has provided fiscal spending support that the manufacturing sector desperately needed,” Xu said.
A Broader Stimulus Strategy to Boost Economic Confidence
Amid global economic uncertainties, Chinese authorities are deploying an aggressive fiscal strategy to support growth. Reports indicate that China is considering a substantial new debt issuance plan, valued at over 10 trillion yuan ($1.40 trillion), aimed at stabilizing local government finances and alleviating the burden of hidden debt risks. This measure, if approved, is expected to strengthen local government projects, thereby boosting the construction and service sectors as well.
In the face of declining youth employment rates, which had been a major economic concern earlier this year, the government has rolled out employment incentives for companies. These subsidies are helping ease job market pressure, especially for fresh graduates, which in turn supports overall consumer demand. In September, youth unemployment showed signs of improvement, lending further support to the idea that government interventions are beginning to stabilize key economic metrics.
Retail Sales and Industrial Output Exceed Forecasts
A critical factor in this tentative recovery is the gradual revival of domestic demand. October data reveals that both retail sales and industrial output performed better than anticipated, signaling that consumer demand might be rebounding. Retail sales have benefited from improving consumer sentiment, while factory output’s resilience suggests that local industries are beginning to adjust to market shifts.
Lynn Song, ING's chief economist for Greater China, interprets the PMI expansion of 50.1 as a cautious yet encouraging sign for the country’s manufacturing sector. "While 50.1 represents minimal growth, it defies expectations for continued contraction and signals a potential continuation of the production uptick we saw in September," Song noted. She emphasized the importance of sustaining domestic demand to offset weakening export markets, which previously served as a key economic driver.
Challenges in External Demand as Exports Continue to Weaken
China’s export sector has been a consistent pillar of economic stability, yet recent data indicates that external demand is weakening. China’s exports saw a decline last month, partly due to global economic uncertainties and the ongoing geopolitical tensions. The third-quarter economic growth, at its slowest rate since early 2023, further underscores the impact of declining exports on China’s overall growth.
Export dependency has been a double-edged sword, especially as other major economies face their own challenges. Global conditions, ranging from inflationary pressures in Western markets to geopolitical complexities, have created a more volatile environment for China’s export-based economy. With international demand dwindling, China’s pivot towards strengthening domestic consumption has become more critical than ever.
Mixed Responses from Manufacturing Sectors
Although large enterprises have shown a noticeable improvement, with their PMI rising to 51.5 from 50.6, medium-sized firms have only seen marginal growth, and smaller firms remain in contraction. This disparity highlights the unique pressures smaller enterprises face in an economy transitioning from heavy reliance on exports to a more balanced mix of export-driven and domestic demand.
Julian Evans-Pritchard, head of China Economics at Capital Economics, points out that sentiment-based surveys can often reflect a gloomier outlook than actual data suggests. "The PMIs tend to overstate China’s economic weakness, yet they provide valuable insight into economic direction," he stated. This past year, China’s PMIs have consistently reflected cautious optimism, and the October data appears to affirm a positive shift as the country moves deeper into the fourth quarter.
Sustaining the Recovery: Key Hurdles Ahead
For China’s economic recovery to gain momentum, domestic demand must remain strong, and business confidence must continue to improve. The industrial sector, although showing signs of revival, still struggles with steep declines in industrial profits, which fell sharply in September, marking the steepest monthly drop this year. This reflects the complex challenges industries face, ranging from low demand to high input costs.
An additional concern is that new export orders, a component within the PMI, declined further in October. On a positive note, domestic new orders rose to 50.0, reflecting an upswing in local demand and possibly suggesting that consumer confidence within China is beginning to stabilize. Analysts believe that if this trend persists, it could offset some of the weaker external demand and provide a more sustainable growth path.
Macroeconomic researcher Zhou Maohua from China Everbright Bank noted, “The manufacturing sector's recovery in October is a good start for the fourth quarter.” However, the strength of this recovery will depend on the Chinese government’s ability to effectively manage policy transitions and build a more resilient economic framework.
Looking Ahead: Policy Adjustments and Economic Outlook
China’s government appears poised to continue fine-tuning its economic policies in response to fluctuating market conditions. In addition to financial stimulus and bond issuance, policymakers are considering structural reforms aimed at promoting entrepreneurship and innovation within key industries. By supporting small- and medium-sized enterprises (SMEs) with targeted assistance, the government hopes to diversify economic growth sources and strengthen the broader industrial ecosystem.
Observers believe that as the year progresses, China’s economic outlook may further improve if domestic demand can compensate for global uncertainties. The government’s strategy of fostering local economic activities, addressing hidden debt, and promoting consumption is geared toward achieving this year’s growth target of approximately 5%. Although the path to full recovery remains challenging, the steps taken so far reveal a clear determination to stabilize and support China’s economic resilience in an unpredictable global landscape.
(Source:www.asianikkei.com)
