China’s Factory Activity Declines in September

BEIJING (Reuters) – China’s factory activity in September shrank for the fifth consecutive month while the services sector experienced a sharp slowdown, indicating the necessity for more stimulus to meet Beijing’s 2024 growth target with only three months left in the year.

The National Bureau of Statistics (NBS) purchasing managers’ index (PMI) released on Monday rose slightly to 49.8 in September from 49.1 in August. However, it remains below the 50-mark that delineates growth from contraction, even though it surpassed the median forecast of 49.5 in a Reuters poll. This figure represents the highest level in five months.

Alongside a discouraging private-sector Caixin survey released the same day, the data highlighted that China’s expansive manufacturing sector continues to be a significant challenge for policymakers. They have recognized the economy is facing “new problems” and have called for stronger stimulus measures.

In response, the central bank and top financial regulator announced on Sunday evening a series of comprehensive measures, including urging banks to lower mortgage rates on existing home loans before October 31.

Last week, authorities also introduced the most aggressive stimulus package since the onset of the COVID-19 pandemic.

Services Activity Cools

The September reading of the non-manufacturing PMI, encompassing services and construction, decreased to 50.0 from 50.3 in August, marking the lowest level in 21 months.

The services PMI dropped to 49.9, indicating the first contraction since December of the previous year, while the construction PMI rose slightly to 50.7 from 50.6 in the prior month.

Reuters reported Thursday that 1 trillion yuan ($142.56 billion) would be raised through special bonds to enhance subsidies for a consumer goods replacement program and facilitate business equipment upgrades.

China also plans to secure another 1 trillion yuan through different special debt issuance to assist local governments in addressing their debt issues, as reported by Reuters.

Officials indicated last week that the program has already stimulated sales in automobiles, home appliances, and home decoration products.

The Caixin services PMI revealed activity in the sector is slowing. As a downturn in the property market continues to hinder the broader economic recovery, top leaders held a Politburo meeting last week where they called for measures to halt declining housing market conditions.

Major cities like Shanghai and Shenzhen are expected to lift key home purchase restrictions in the coming weeks, joining numerous smaller cities that have already done so, according to a Friday report from Reuters.

Analysts anticipate that the stimulus, along with a new fiscal package approximating 2 trillion yuan, could be sufficient to achieve the “around 5%” growth target. Nonetheless, challenges of weak demand and a worsening global trade environment still need to be addressed.

($1 = 7.0146 Chinese yuan)