The PMI composite index is a widely-used indicator of economic activity in the manufacturing sector, calculated from five weighted sub-indices based on responses from industry purchasing managers. Of these sub-indices, production was the only one to show growth, rising to 51.2 in September, up from 49.8 in August, suggesting that manufacturing output expanded despite weakness in other areas. New orders saw some improvement but remained in contraction territory at 49.9, signaling sluggish demand. Supplier delivery times decreased slightly from 49.6 to 49.5, which could point to faster deliveries, but may also indicate reduced demand as suppliers can meet orders more easily. Inventories of finished goods dropped to 48.4, down by 0.1 points from August, indicating businesses may be keeping inventories lean due to cautious market expectations or slower production.
The employment sub-index remained weak at 48.2, marking its 13th consecutive month of contraction, highlighting ongoing labor market challenges in the sector. Meanwhile, the PMI for China’s non-manufacturing sector, which includes services and construction, registered at 50.0 in September, slightly down from 50.3 in August, marking the lowest level since last year.
Despite these concerning figures, Chinese analysts noted that September’s PMI reading was the highest since April, and some improvement in overall economic conditions was seen. Policymakers have been rolling out various measures earlier this year to stimulate domestic demand, which has struggled to recover since the end of China’s strict pandemic lockdowns in late 2022. These measures include trade-in programs for electronics and home appliances, and the introduction of around $43 billion in long-dated bonds to support local governments and drive growth through infrastructure projects.
In a further attempt to stimulate the economy, China’s central bank and financial regulators introduced the most ambitious stimulus package since the pandemic, including cuts to the reserve requirement ratio (RRR) for banks. This move is designed to free up more capital for loans to businesses and consumers. Additionally, lenders have been instructed to reduce mortgage rates for existing home loans by October 31, to ease the financial burden on homeowners amid the ongoing real estate crisis.