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Andrew Mullen

1. Manufacturing ‘bucks’ expectations
China’s manufacturing sector showed broad improvement in October, with the impact of Beijing’s stimulus drive seemingly becoming felt.
The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – beat expectations and ended five straight months of contraction by rising to 50.1 in October, compared to September’s reading of 49.8.
Readings above 50 indicate expansion on a monthly basis, while one below 50 suggests contraction.
Within the official manufacturing PMI, the overall new order subindex edged up, even although the new export order element was 47.3 in October, a further decline from 47.5 in September.
“The 50.1 level 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 could continue,” said Lynn Song, chief economist for Greater China at ING.


The Caixin/S&P Global manufacturing PMI echoed the official survey, beating projections with a rise to 50.3 in October from 49.3 the previous month.
According to the Caixin survey, incoming new orders placed with Chinese manufacturers increased at the quickest pace in four months. That also pushed production expansion to the quickest pace since June.
Manufacturers’ confidence about future output improved, as their optimism levels climbed from September’s low to the highest level in five months.
“The latest Caixin manufacturing PMI reading adds to wider evidence that, after turning a corner in September, the economy continued to regain momentum last month,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“Stimulus efforts are already having an effect and will remain a tailwind over the coming months.”
2. Services lifts non-manufacturing despite construction drag
China’s official non-manufacturing PMI – which tracks both the service and construction sectors – also returned to growth at 50.2 in October, up from 50 in September, driven by activity in the service sector.
Within the official non-manufacturing PMI, the service sector subindex rose to 50.1 from 49.9 last month, boosted by the travel rush in related industries like logistics and transport during the week-long National Day holiday earlier this month.
The construction sector subindex, though, fell to 50.4 in October - its lowest level since the onset of the coronavirus pandemic - down from 50.7 in September.
But the new order subindex for the construction industry jumped to 43.5, from 39.5 in September.
The improvement in China’s non-manufacturing PMI was “driven by an improvement in services activity”, said Evans-Pritchard at Capital Economics.


“The accompanying statement suggests that the transport and telecommunications sectors did particularly well, while real estate services continue to contract,” he added.
But with the official construction PMI falling to its lowest on record, the recent step-up in fiscal spending “appears to have been insufficient to offset the wider drags on construction activity”, he said.
The Caixin/S&P Global services PMI also matched the official PMI, growing to 52 in October from 50.3 in the previous month.
The Caixin survey showed new business increased marginally to 52.1 from 51 in September, however, expansion of new business inflows from abroad slipped.
“The Caixin service PMI rebounded and exceeded market expectations. This is consistent with the manufacturing PMI data,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
3. Composites move further into expansion
China’s official composite PMI – which tracks both the manufacturing and non-manufacturing sectors – stood at 50.8, up from 50.4 in September.
The Caixin/S&P Global composite PMI also rose to 51.9 from 50.3 in September.
4. China regained momentum, but more still needed
Evans-Pritchard at Capital Economics said the substantial rise in the Caixin services and composite PMIs added to the view that the economy regained momentum in October.
“Stimulus efforts should continue to provide a tailwind over the coming months,” he said.
Zhang at Pinpoint Asset Management, though, said that it was too early to conclude if this was a sustainable stabilisation of the economy.
“I expect the economy may stabilise in the fourth quarter as policy easing through monetary and fiscal channels helps to mitigate the deflationary pressure,” he said.
“The policy stance next year, particularly on the fiscal side, will be the critical force that drives the economic outlook in the longer term.”


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Indices of sentiment in China’s manufacturing sector both returned to expansion in October, while non-manufacturing also improved


Indices of sentiment in China’s manufacturing sector both returned to expansion in October, while non-manufacturing also improved.


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China’s stimulus seems to be trickling through, but is it too early to tell?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Indices of sentiment in China’s manufacturing sector both returned to expansion in October, while non-manufacturing also improved

1. Manufacturing ‘bucks’ expectations

Indices of sentiment in China’s manufacturing sector both returned to expansion in October, while non-manufacturing also improved