On August 9, 2023, workers gathered in the workshop of an equipment manufacturing company in Yunmenshan Street, Qingzhou City, Shandong Province.
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Factory activity among China’s small manufacturers resumed expansion in October, according to statistics A private investigation released on Friday.
The Caixin/S&P Global Manufacturing Purchasing Managers’ Index was 50.3 in October, exceeding the median forecast of 49.7 in a Reuters poll.
September’s reading was 49.3, August’s reading was 50.4 and July’s reading was 49.8. A PMI reading above 50 indicates an expansion in economic activity, while a reading below that level indicates a contraction.
Official Purchasing Managers’ Index (PMI) data released on Thursday showed the country’s manufacturing activity expanded for the first time since April. Compared with official PMI data, which consists of large state-owned enterprises, the Caixin series tends to focus more on exporters and private companies.
Wang Zhe, senior economist at Caixin Think Tank, said in the survey report, “Both supply and demand have expanded, market demand has picked up overall, and production has grown steadily.”
New orders received by Chinese manufacturers also grew at the fastest pace in four months due to “underlying demand conditions and continued new business development efforts,” the release said.
However, Caixin pointed out that although the decline slowed during the latest survey, export orders are still on a downward trend and employment has fallen again, which means manufacturers remain cautious in terms of labor force numbers.
Andy Maynard, managing director at China Renaissance, said the latest data was “absolutely encouraging for the market” and a good sign that the Chinese government’s lightning stimulus measures in September were “clearly affected by received good reviews.”
In September, the People’s Bank of China cut the deposit reserve ratio, or the amount of cash reserves banks are required to hold, by 50 basis points. The seven-day reverse repurchase rate was also lowered by 20 basis points from 1.7% to 1.5%.
“I think it’s early days and a small step in a way, and it will be interesting to see what the data points look like in the future,” Maynard said.
The world’s second-largest economy has been struggling to regain momentum in the face of tepid consumption and a troubled housing market. Exports have become a rare bright spot.
“Market sentiment has stabilized somewhat as the government adopts a more growth-friendly economic rescue agenda, raising hopes of stronger demand,” said Gary Ng, senior economist at Natixis.
However, Ng told CNBC that there is still uncertainty about whether this trend can continue. Domestic competition in China remains fierce, and industrial utilization, a measure of corporate efficiency, remains below historical averages.
External demand may also be affected by the outcome of the upcoming U.S. election and rising protectionism around the world, he added. “Whether prices can recover in the future will be important in assessing the recovery of the manufacturing industry.”
China’s National People’s Congress Standing Committee is scheduled to meet next week and is expected to announce details of fiscal stimulus after the meeting on November 8.
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