China’s factory sector posted a modest expansion in September, with the official manufacturing purchasing managers’ index (PMI) edging up to 50.1 from 49.8 in August, according to data released by the National Bureau of Statistics (NBS). The reading, just above the 50‑point threshold that separates growth from contraction, matched the median forecast of a Reuters poll.
Drivers of the rebound
NBS chief statistician Huo Lihui attributed the improvement to stronger activity in equipment and high‑tech‑related manufacturing, as well as consumer‑focused industries. The non‑manufacturing PMI also turned positive, climbing to 50.2, driven by a pick‑up in services activity and a year‑high reading in construction.
Manufacturers have benefited from a surge in artificial‑intelligence hardware production, although weak domestic consumer demand and higher energy costs linked to the Middle East conflict continue to pressure margins.
Policy response
On Tuesday, China’s top economic and financial authorities announced a package of targeted fiscal and monetary measures aimed at lowering financing costs and encouraging lending. The finance ministry pledged mortgage subsidies for qualified home buyers, while the People’s Bank of China expanded the quota for a lending‑support program that funds infrastructure projects and offers loans to technology firms and small enterprises. The central bank also cut the interest rate on that program to make housing more affordable.
Economists at Nomura cautioned that the new measures are “not sufficient to bolster growth,” describing the steps as too small to overcome the fundamental barriers facing the economy.
Analysts weigh in
Macquarie’s China economist Larry Hu called the announcements a “mini stimulus” that should be “just enough” to meet the government’s 2024 growth target of 4.5%‑5%. Hu expects Beijing to act with less urgency as long as export performance remains robust.
Exports, a key driver of China’s economy this year, are showing signs of strain as trading partners raise concerns about excess manufacturing capacity and reliance on foreign demand, while domestic consumption lags.
Hu projects real GDP growth to rise to 4.4% in the third quarter and 4.7% in the fourth quarter, up from a three‑year low of 4.3% recorded in the second quarter.
Goldman Sachs described the Tuesday measures as more significant as a policy signal than as an immediate growth catalyst. The bank noted that the targeted credit easing mainly supports the supply side, and its impact on investment and broader growth will hinge on implementation details.
The mortgage subsidy, which will run for one year, is designed to stimulate housing demand by encouraging first‑time buyers of homes priced at 1.5 million yuan ($224,000) or less and no larger than 120 square meters. Goldman analysts expect the subsidy to provide a short‑term lift to home sales, but anticipate only a modest contribution to overall economic growth because of the tight eligibility criteria.
The latest PMI data and policy moves come after months of deteriorating indicators following a disappointing second quarter, underscoring Beijing’s effort to keep the economy on track for its annual growth objectives.
Norman Pearlstine is the Executive Editor and Co-Founder at News Raise. With over two decades of experience across financial journalism, corporate governance, and market analysis, Norman leads the editorial direction and ensures strict adherence to journalistic accuracy and ethics.
