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Andrew Mullen

1. Manufacturing hits 5-month high, but activity remains subdued
China’s official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – rose to a five-month high of 49.8 in September, compared with August’s reading of 49.1.
It exceeded the expected reading of 49.5 predicted by economists polled by Bloomberg but remained in contractionary territory for the fifth consecutive month, “signalling still-subdued factory activity”, according to analysts.
A reading above 50 typically indicates an expansion of economic activity, whereas a reading below implies a contraction.
“The upside surprise was largely due to incomplete seasonal adjustments, as September is usually a month of more robust manufacturing activity, rather than a real improvement in the economy,” said analysts at Japanese investment bank Nomura.


Within the official manufacturing PMI, the new manufacturing export order subindex fell to 47.5 in September from 48.7 in August.
Meanwhile, the Caixin/S&P Global manufacturing PMI, which was also released on Monday, slipped to 49.3 in September from 50.4 in August.
The reading, which has a greater representation from smaller, privately owned companies, compared with the official PMI, fell short of analysts’ forecasts for a reading of 50.5 in a Bloomberg poll.
“The NBS and Caixin manufacturing PMIs pointed to different directions for the manufacturing sector in September, potentially due to their differences in sample coverage,” said analysts at Goldman Sachs, as the Caixin survey is conducted in the middle of the month, while NBS survey is conducted between the 20th and 25th of the month.
“Overall, both PMIs suggest China’s manufacturing activity slowed in September, and adverse weather [such as from Typhoon Yagi] impacted the PMI readouts.”
2. ‘Consumer sentiment remained dire’ as services stall
China’s non-manufacturing PMI – which tracks both the service and construction sectors – fell to 50 in September from 50.3 in August, ending a run of 20 straight months of expansion.
Within the non-manufacturing PMI, the construction sector subindex stood at 50.7 in September, up slightly from 50.6 in August.


But the service sector subindex fell to 49.9 from 50.2, falling into contractionary territory for the first time since December.
“It signals that consumer sentiment remained dire, at least before the latest surprise from the Politburo meeting” on Thursday, added analysts at Nomura.
The Caixin services PMI, meanwhile, fell to 50.3 in September from 51.6 in August.
“[The survey suggested] service sector activity continued to expand, but at a much slower pace in September,” said analysts at Goldman Sachs.
“Surveyed companies mentioned that the slowdown in growth led to a marked reduction in optimism levels among service providers.”
3. Composite average slips
China’s official composite PMI – which tracks both the services and manufacturing sectors – stood at 50.4 in September, up from 50.1 in August.
The Caixin composite PMI, meanwhile, inched down to 50.3 in September, from 51.2 in August.
“Overall, the average of the official and Caixin composite PMIs fell from 50.6 to 50.3, an 11-month low,” said Gabriel Ng, assistant economist at Capital Economics.
4. Still more to be done despite policy ‘bazooka’
Last week’s policy-stimulus measures and a statement from the top-level Politburo came too late to be reflected in September’s PMI readings.
But analysts said that, with investors keen on knowing how to track economic activity, the PMIs in the coming months could provide useful signals for policy implementation and impacts.
“While the official PMIs held up OK in September, the Caixin PMIs dropped quite sharply, which suggests that the economy lost some momentum this month,” said Ng at Capital Economics.
“The stimulus package announced last week thus comes at a much-needed time, and should provide some near-term support to activity,” Ng added. “But the key to a cyclical recovery is fiscal support – the scale of which has yet to be confirmed.”
This ‘shock and awe’ strategy could be meant to jump-start markets, but Beijing still needs to introduce well-thought policies
Nomura
And despite last week’s moves, Nomura maintained its forecast for China’s economy to grow in the third quarter by 4.1 per cent, year on year.
“Following the unexpected September Politburo economic meeting, together with the funding and spending measures reported by some global media outlets and the batch of monetary and credit stimulus announced earlier, it seems Beijing is finally determined to roll out its ‘bazooka’ stimulus in rapid succession,” Nomura’s analysts said.
“This ‘shock and awe’ strategy could be meant to jump-start markets, but Beijing still needs to introduce well-thought policies to address many of the deep-rooted problems, particularly regarding how to stabilise the property sector.”


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China’s official manufacturing purchasing managers’ index hit a five-month high, but reading from a private survey slipped into contraction


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China’s official manufacturing purchasing managers’ index hit a five-month high, but reading from a private survey slipped into contraction

1. Manufacturing hits 5-month high, but activity remains subdued