China’s factory activity falls back into contraction

China's manufacturing sector slipped back into contraction in October, ending a one-month rebound and getting the fourth quarter off to a weak start. The official manufacturing purchasing managers' index (PMI) fell to 49.3 from 50.1 in September, the National Bureau of Statistics said on Saturday, Oct. 31, Beijing time. A reading below 50 indicates contraction. October's reading was the fastest contraction in three months, Reuters reported, as weak demand, including for exports, weighed on manufacturers.bloomberg.com+1

The drop was steeper than forecasters expected. A Reuters poll of 23 economists had projected the index would ease only slightly to 50. A Bloomberg survey had a median forecast of 49.9. Bloomberg said the result shows how hard it will be for policymakers to keep the recovery going and meet this year's growth target. China's state news agency Xinhua reported the same figure, saying the index was down 0.8 percentage points from September.reuters.com+2

A short-lived rebound

September had brought some relief. The index rose to 50.1 from 49.8 in August, the first expansion since June. That gain came from production, which hit a nine-month high, according to Trading Economics' summary of the official data. Even then, foreign orders were still shrinking and business sentiment sat at a five-month low. The new orders subindex dipped to 50.5, and employment kept contracting.tradingeconomics.com

Before the October release, Reuters described a factory sector moving at two speeds. Advanced manufacturers were racing ahead while older industries stayed under pressure. Strong exports and solid industrial output had helped economic growth pick up in the third quarter.reuters.com

Pressure on policymakers

The PMI is built from purchasing managers' reports on whether new orders, output and employment improved, worsened or stayed the same compared with the previous month, Reuters noted. Falling back below 50 suggests the September gain may not last, especially for exporters exposed to weaker overseas demand.kfgo.com

Beijing has already rolled out support measures. In late September these included targeted rate cuts, mortgage support and extra local debt quotas. Weak consumption, sluggish private investment and stress in the property sector have continued to weigh on the economy, Traders Union noted. October's reading is the first major sign of how the fourth quarter has started, and it puts more pressure on policymakers to do more as the year ends.tradersunion.com