China’s economy, the country’s manufacturing activity swung back into growth in October, according to the latest Caixin/S&P Global manufacturing Purchasing Managers’ Index (PMI) released Friday. The PMI rose to 50.3, up from 49.3 in September, signaling an expansion in the sector for the first time since mid-year. This growth exceeded analysts’ forecasts and is being seen as a positive indicator of momentum in the world’s second-largest economy as it enters the final quarter of 2024.
The report points to a renewed uptick in production, spurred by a marked increase in new orders, especially in the domestic market. Analysts and policymakers alike are closely watching these developments as indicators of the effectiveness of recent government stimulus measures. The positive PMI reading follows Beijing’s recent moves to stimulate the economy, and analysts are optimistic that this momentum will support the broader economic goals set for the year.
October’s PMI reading of 50.3 represents a clear recovery from September’s contraction, as a reading above 50 indicates expansion. The improvement is largely attributed to increased demand in the domestic market, which helped offset ongoing weaknesses in export demand.
This private sector data aligns with an official government PMI report released Thursday, which also reflected a shift into expansionary territory after five months of contraction. Official statistics showed that manufacturing activity expanded for the first time since April, reinforcing hopes that China’s economy may be stabilizing after a prolonged period of economic headwinds.
Economic analysts had previously forecasted a PMI reading of 49.7 for October, but the actual figure was slightly higher. “This indicates that the domestic demand side is responding well to the policies rolled out in the last quarter,” said Lin Shu, a macroeconomic analyst at Huatai Securities. “The government’s interventions appear to be having an impact, as new orders are rising in response to stronger consumer demand and industrial purchases.”
This uptick comes as China ramps up efforts to meet its 2024 growth target of around 5%. Aiming to counteract prolonged weaknesses in the economy, including a slump in the property market and record-low consumer confidence, Beijing has implemented several stimulus measures since late September. These measures range from infrastructure investments to targeted lending to key industries, as well as debt issuance to support large-scale projects.
The property market, which has traditionally been a major contributor to China’s economic growth, has faced significant downturns, and consumer spending has struggled to rebound. Both factors have limited the pace of overall economic recovery. “China’s economic challenges are deep-rooted, but the government’s focus on stimulating manufacturing and domestic demand is a step in the right direction,” said Chen Hua, chief economist at Bank of China.
In an effort to fuel economic growth, the Chinese government is reportedly considering an additional debt issuance of more than 10 trillion yuan ($1.4 trillion) over the coming years. This large-scale borrowing plan, expected to be approved next week, is anticipated to support infrastructure development and inject liquidity into the markets, alleviating some pressure on local governments and helping to accelerate various ongoing projects.
Economists expect this funding injection to play a crucial role in supporting the domestic market and providing additional impetus for job creation, particularly in the construction and manufacturing sectors. However, some observers caution that the long-term debt load will require careful management, as excessive borrowing could limit fiscal flexibility in the future.
The Caixin survey highlighted that domestic orders grew at their fastest pace in four months, driving a corresponding increase in production, which reached its highest level since June. However, export demand continues to weigh on the sector’s recovery, with new export orders contracting for the third consecutive month.
Though the decline in export orders has slowed, it remains a point of concern, particularly given the ongoing trade tensions with the United States. With the upcoming U.S. presidential election potentially impacting U.S.-China trade relations, many investors are watching closely for signals that may affect trade policies, especially as Republican candidate Donald Trump has voiced support for stricter tariffs on Chinese imports.
“Manufacturers remain concerned about the external environment, as uncertainty around trade tariffs and demand from major markets remains a challenge,” noted Wang Zhe, senior economist at Caixin Insight Group.
In response to the rise in new orders, manufacturers increased their purchasing activity in October, which led to a buildup of stocks of raw materials and components. This uptick in purchasing activity is seen as a positive response to the anticipated demand in the coming months, though some manufacturers reported delays in outbound shipments, causing post-production inventories to rise.
With manufacturers building up inventories, analysts are hopeful this might lead to greater price stability and continuity in production output through the year-end. Input and output prices rose slightly in October, marking a modest recovery from prior lows, and helping to counterbalance recent deflationary pressures.
Despite the rise in new orders and production levels, the Caixin report highlighted ongoing challenges in the labor market, where the rate of job losses in manufacturing reached its highest level since May 2023. The report suggests that companies continue to reduce temporary staff and are cautious about rehiring.
China’s manufacturing sector has faced labor pressures as companies seek to reduce costs amid uncertain market conditions. Job cuts have added pressure on households and impacted consumer spending, which remains subdued. Addressing this issue, Wang Zhe from Caixin Insight Group commented, “The labor market remains under pressure, and price levels are still subdued. Achieving China’s 2024 growth target will depend on a sustained recovery in consumer demand.”
The government has made recent attempts to stimulate consumer spending by offering subsidies and tax cuts, but analysts suggest that further measures may be necessary to help raise household incomes and restore consumer confidence.
China’s October manufacturing rebound, as indicated by the Caixin and official PMI readings, reflects a step toward stabilizing economic growth as Beijing moves closer to its annual growth target. However, the path ahead is expected to remain challenging, particularly with the fragile state of the property sector, pressures on consumer confidence, and complex trade relations with key international partners.
Moreover, analysts caution that the rapid increase in debt issuance, while beneficial for short-term growth, could pose risks in the long term if not managed carefully. An over-reliance on debt-fueled growth could undermine China’s financial stability and limit its options for future fiscal interventions.
To sustain economic momentum, experts highlight the importance of diversifying growth drivers, fostering innovation, and improving productivity across sectors. “China is moving towards a more balanced model where manufacturing, services, and consumption play complementary roles,” said Li Fei, an economic researcher at Tsinghua University. “This will reduce the economy’s dependency on any single sector and support long-term stability.”
