The Chinese economy stabilizes, and factory activity returns to expansion

An employee works on the production line at the Jingjin Filtration Pressure Plant in Dezhou, Shandong Province, China on August 25, 2022. REUTERS/Siyi Liu/File Photo Obtaining licensing rights

  • China Manufacturing PMI for September 50.2 versus 49.7 in August
  • China: September non-manufacturing PMI 51.7 vs. 51.0 in August
  • China Composite PMI for September 52.0 vs. 51.3 in August

BEIJING (Reuters) – China’s factory activity grew for the first time in six months in September, an official survey showed on Saturday, adding to a series of indicators that the world’s second-largest economy is starting to recover.

The Purchasing Managers’ Index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, above the 50-point level that separates a contraction in activity from an expansion. The reading beat expectations of 50.0.

The PMI, the first official statistics for September, adds to signs of stabilization in the economy, which has eased after an initial burst of momentum early in the year when China’s highly restrictive Covid-19 policies were lifted.

Initial signs of improvement emerged in August, with growth in factory output and retail sales accelerating while declines in exports and imports narrowed and deflationary pressures eased. Industrial company profits recorded a surprise jump of 17.2% in August, after a 6.7% decline in July.

“The manufacturing PMI, as well as good industrial profit numbers, indicate that the economy is gradually reaching the bottom,” said Zhou Hao, chief economist at Guotai Junan International.

China’s non-manufacturing PMI, which includes sub-indices for service and construction sector activity, also rose to 51.7 from 51.0 in August.

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The composite PMI, including manufacturing and non-manufacturing activity, rose to 52.0 in September from 51.3.

Near-term data on economists’ radar includes consumer spending for the longest public holiday of the year. Golden Week began on Friday with the Mid-Autumn Festival, which will be followed by the National Day holiday until October 6.

State media reported on Saturday that passenger rail travel on Friday reached 20 million trips, a single-day record, in a positive start to what authorities expected to be “the most popular Golden Week in history.”

Ownership risks

Policymakers will welcome more stable economic indicators as they continue to confront the real estate sector debt crisis that shook global markets. The authorities announced a series of measures to support the real estate market, including lowering mortgage interest rates, although the sector is still far from emerging from the crisis.

New home prices fell at the fastest pace in 10 months in August, and real estate investment fell for the 18th straight month.

China Evergrande Group (3333.HK), the world’s most indebted property developer with liabilities of more than $300 billion, said on Thursday that its founder was being investigated for suspected “illegal crimes.”

The Asian Development Bank last week cut its 2023 economic growth forecast for China to 4.9% from July’s forecast of 5.0% due to weakness in the real estate sector.

Analysts say more political support is needed to ensure the Chinese economy can meet the government’s growth target of around 5% this year.

“The Chinese economy has stabilized, driven in part by an easing of real estate sector policies,” said Qiu Zhang, chief economist at Pinpoint Asset Management.

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“The key issue going forward is whether fiscal policy will become more supportive. I think it will, but in terms of timing, a change in fiscal policy stance could happen next year rather than this year.”

(Reporting by Ryan Wu, Tina Chiao and Joe Cash; Preparing by Mohammed for the Arabic Bulletin) Editing by Michael Perry and William Mallard

Our standards: Thomson Reuters Trust Principles.

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