China’s factory activity has experienced a notable decline for the seventh consecutive month in October, driven by weak domestic demand and an increasingly complex economic landscape. This downturn presents significant challenges for policymakers in Beijing, particularly as they navigate the ongoing trade tensions with the United States.
The latest purchasing managers’ index (PMI) has dropped to 49, as revealed in official statistics released on Friday. This figure not only falls short of the analysts’ forecast of 49.6 but also marks a decrease from September’s reading of 49.8. A PMI below 50 indicates a contraction in manufacturing activity, highlighting the ongoing struggles within the sector.
Huo Lihui, the chief statistician at the National Bureau of Statistics, attributed the decline to various seasonal factors, including a weeklong public holiday at the start of the month, and noted the impact of a “more complex international environment.” This complicated scenario comes despite China’s commitment to bolster high-tech manufacturing and enhance self-reliance in science and industry amid its rivalry with the US.
The trade war has seen some developments, with an agreement reached between President Xi Jinping and US President Donald Trump to cease hostilities during a recent summit in South Korea. This truce involves suspending export controls and certain tariffs. However, analysts express skepticism regarding the sustainability of this ceasefire given the deeply entrenched differences between the two nations.
Traditionally, China has depended heavily on manufacturing and exports to maintain economic growth, especially in light of a slowdown in the property market that has negatively impacted consumer confidence and spending. Despite this broad slowdown reflected in the PMI data, which signifies the longest continuous decline in over nine years, there are signs of resilience in high-tech and equipment manufacturing sectors that are favored by Beijing’s industrial policies. The National Bureau of Statistics indicated that these sectors continued to expand in October, with consumer-related areas also witnessing growth, buoyed by extensive government subsidies aimed at stimulating domestic consumption.
In parallel, the non-manufacturing PMI, which encompasses sectors like construction and services, rose by 0.1 percentage points in October to reach 50.1, indicating an expansion. This increase was supported by sectors such as railway and air transportation, accommodation, and cultural activities, following an eight-day national holiday that included the mid-autumn festival—a time typically associated with significant travel and spending.
China’s exports have shown resilience during the ongoing trade war, increasing by 8.3 percent year-on-year in September. Nonetheless, authorities express growing concern over aggressive competition among producers leading to deflationary pressures by driving down prices. Policymakers have begun intervening in key industries like electric vehicles and solar panels to combat predatory pricing practices. However, economists caution that such interventions could inadvertently dampen overall economic activity.
Recent statistics reveal a downturn in manufacturing, with declines in new orders, raw materials inventories, and the employment index for factories in October, all indicating sluggish activity. Analysts from Capital Economics noted that the official PMI readings signify a loss of momentum in the Chinese economy. They suggest that, while some of the current weaknesses may be temporary, the anticipated boost to exports stemming from the recent US-China trade agreement is likely to be modest, with broader challenges to economic growth expected to persist.
