China economy

Chinese manufacturing activity little changed at very low level in October, Caixin PMI data show

  • Caixin PMI, which tracks smaller private firms, shows manufacturing growth was little changed at very low level in October
  • Chinese Politburo signalled Wednesday night that it would enact additional measures to combat ‘growing downward pressure’ on the economy
PUBLISHED : Thursday, 01 November, 2018, 10:35am
UPDATED : Thursday, 01 November, 2018, 10:59pm

Chinese manufacturing sector growth was little changed at a very low level in October amid pressures from the US trade war, data from financial news outlet Caixin showed.

The data released Thursday comes after the Chinese government signalled Wednesday night that it will enact new measures to combat “growing downward pressure” on the economy.

The manufacturing purchasing managers’ index compiled by Markit and published by Caixin inched up to 50.1 in October, just above the 50.0 level forecast by analysts in a Bloomberg survey and the reading of 50.0 in September.

China’s leaders prepare for worse as economy takes trade war hits

The index level of 50 is the dividing point between expansion and contraction in the sector. The latest figure means that the manufacturing sector activity increased very slightly in October but remained at a very low level.

The Caixin result follows the official PMI data released Wednesday that showed manufacturing sentiment posted a larger-than-expected drop to 50.2 in October from 50.8 in September – meaning factory activity continued to expand but at a much slower pace.

Trade war hitting China economy harder, sooner, than anticipated

As with the official PMI, the weak October result was led by export orders, which contracted for the seventh month in a row. Employment also contracted. Moreover, the outlook for production fell to an 11-month low.

But overall new orders edged on domestic demand and production remained in positive territory.

“Overall, expansion across the manufacturing sector was still weak,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said of the October PMI data. “Production and business confidence continued to cool despite stable demand. The pressure on production costs didn’t ease.

“China’s economy has not seen obvious improvement,” he said.

The Caixin survey respondents are dominated by smaller, mostly private firms, while the official PMI is a better gauge of activity among larger, mostly state-owned firms. As such, the Caixin result underscores the difficulties smaller private sector firms are having given the trade war and government campaign to reduce indebtedness.

Private sector firms in all sectors account for 60 per cent of Chinese economic activity and 80 per cent of employment.

Trade war forces firms to consider pulling out of US and China

The government has taken notice.

After its meeting on Wednesday night, the Politburo – the Communist Party’s top decision-making body headed by President Xi Jinping – said there were “many difficulties with certain enterprises and the emergence of risks accumulated over long periods of time”.

“We need to attach great importance to this situation and be more forward-looking to respond in a timely manner,” according to a statement carried by the official Xinhua news agency.

“We have to enhance reform and opening up to focus on core problems with targeted solutions … We must get our own things done and firmly seek high-quality growth.”

But at least for the time being, the government will not fall back on its battle-tested practice of large-scale monetary and fiscal stimulus. According to the statement, the leaders decided to continue with the country’s “proactive fiscal policy and prudent monetary policy” while again underscoring the need to “stabilise” employment, finance, trade, foreign capital, investment and expectations.

They also sent an explicit message that Beijing would “unswervingly” support private enterprises. After their meeting three months ago, the Politburo put priority on infrastructure spending to bolster economic activity and did not mention the “private economy”.