Factory activity in China contracted in October, signaling a slowdown in the pandemic recovery

01 Nov, 2023

Factory activity in China contracted in October, signaling a slowdown in the pandemic recovery

In an official survey, China's manufacturing sector reported a contraction in activity for the month of October, highlighting ongoing challenges in the country's economic recovery.

The Purchasing Managers' Index (PMI), a key indicator of manufacturing activity, dropped to 49.5 in October on a scale of 100 points, down from 50.2 the previous month. A PMI reading below 50 indicates a contraction in manufacturing, while a reading above 50 signifies expansion. Concurrently, the non-manufacturing PMI for October fell by 1.1 percentage points to 50.6, reflecting a slowdown in China's service and construction industries.

While some aspects of factory production and supplier delivery times improved, metrics related to new orders, raw materials, and employment witnessed contractions. China's economic rebound from the initial impact of the COVID-19 pandemic has encountered setbacks, with earlier growth fading more rapidly than anticipated. In response, the government has increased infrastructure spending, reduced interest rates, and eased restrictions on property purchases. However, economists argue that broader reforms are required to address long-term growth constraints.

Robert Carnell, ING Economics' Regional Head of Research for the Asia Pacific, noted that the recent PMI data implies a potential slowdown in China's economic growth in the early fourth quarter. He recognized that implementing support measures, such as heightened government spending, could mitigate this deceleration. He added, "Even so, today's data suggest that although it has weakened, economic growth is still ongoing."

Despite these challenges, recent data indicates that China is likely to achieve its growth target of 5% for the year. The economy expanded at an annual pace of 4.9% in the last quarter. Notably, the property sector, once a significant contributor to China's economic growth, has now become a drag on growth as developers grapple with substantial debt burdens and declining sales.