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Home News Unexpected Expansion in China’s Manufacturing Sector Signals Potential Economic Recovery

Unexpected Expansion in China’s Manufacturing Sector Signals Potential Economic Recovery

by Barbara

China’s factory activity has shown unexpected signs of expansion after five months of decline, indicating that recent stimulus measures might be beginning to foster growth momentum. According to the National Bureau of Statistics (NBS), the official manufacturing purchasing managers’ index (PMI) increased to 50.1 in October, up from 49.8 in September. This figure surpasses the pivotal 50-point threshold that distinguishes expansion from contraction and is notably above the median economist forecast of 49.9, as reported by Bloomberg News.

Additionally, the non-manufacturing PMI, which includes construction and services, rose to 50.2 from 50 last month, though it fell short of the anticipated 50.3.

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This PMI report is the first official economic indicator released since China unveiled its most aggressive stimulus package since the pandemic began. Zhao Qinghe, a senior statistician at the NBS, remarked, “China’s economic activity continued to rebound and improve in October, as a package of new policy measures were rolled out and existing policies began to make an impact gradually.”

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In morning trading, the offshore yuan experienced a slight decline of 0.1%, while yields on China’s 10-year government bonds remained stable at 2.16%.

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The production activity component of the manufacturing PMI climbed to 52, marking the highest level in six months, and overall new orders stabilized. However, new export orders continued to struggle, contracting slightly to 47.3.

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Lynn Song, chief Greater China economist at ING Bank, noted, “Looking ahead, we’ll need to monitor whether the stimulus rollout can stimulate a recovery in domestic demand to counterbalance what appears to be a weakening external demand landscape.”

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In late September, the Chinese central bank implemented significant interest rate cuts and measures aimed at bolstering the housing market. Further details regarding fiscal policy support are expected to be revealed next week at a key meeting of the nation’s top lawmakers.

This stimulus initiative may assist the world’s second-largest economy in reaching its official growth target of approximately 5% for the year. Despite a slow expansion during the last quarter—the slowest in six quarters—there were signs of improved consumer spending in the final weeks of the period.

Nonetheless, the economy faces ongoing challenges, including a downturn in the housing market that has dampened consumer confidence, rising trade tensions, persistent deflationary pressures, and a declining population. A consumer confidence index fell in September to its lowest point since 2022.

While the latest measures may not completely reverse the deflationary trend, some economists view them as a significant shift in Beijing’s approach, signaling increased urgency to combat the economic slowdown.

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