China’s factory activity beat expectations and expanded for the first time in three months in September, data released on Friday showed, but analysts said the improvement “should be taken with a grain of salt” due to ongoing coronavirus restrictions and an increasingly challenging export environment. The official manufacturing purchasing managers’ index (PMI) rose to 50.1 this month, up from 49.4 in August , according to the National Bureau of Statistics (NBS). The 50-mark separates growth from contraction on a monthly basis. The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 50.6 in September from 52.6 in August. “The bottom line is that local stimulus is having some impact, but conditions at home remain challenging, while export conditions will come increasingly under pressure heading into 2023,” said Katrina Ell, senior economist at Moody’s Analytics. On Wednesday, Premier Li Keqiang said that China’s had economy generally recovered and stabilised in the third quarter, with Beijing set to push ahead with its economic programme in the last three months of the year. Beijing has been rolling out measures since May, including tax cuts and infrastructure spending, to cushion the blow facing the economy and to boost investor confidence. The official composite PMI, which includes both manufacturing and services activity, fell to 50.9 in September, down from 51.7 in August. ‘The old rules are being broken’: uncertainty plagues China’s economy “In September, with a series of stimulus packages continuing to take effect, coupled with the impact of hot weather receding, the manufacturing boom has rebounded. The PMI returned to the expansionary range, ” said senior NBS statistician Zhao Qinghe. “[The non-manufacturing index] remained above the threshold, with the overall expansion of the non-manufacturing sector decelerating. “[The composite PMI] indicates that China’s enterprise production and operation activities continue to expand in general, but the pace of expansion has slowed down.” Last month, China’s exports grew by 7.1 per cent compared with a year earlier, but were down from 18 per cent growth in July due to weakened external demand, while imports grew by only 0.3 per cent last month. The deterioration in new export orders subindices, in both the official and Caixin manufacturing PMIs, bodes poorly for exports Nomura “The improvement in the official manufacturing PMI should be taken with a grain of salt, in our view, as it was mainly led by a jump in the production subindex … while all other four subindices remained below 50, which suggests weak demand continues to drag on the economy,” said analysts from Japanese investment bank Nomura. “The services sector PMI dipped into contractionary territory again in September … weighed on by lockdowns in a number of large cities, including Chengdu, and tightened Covid control measures nationwide. The deterioration in new export orders subindices, in both the official and Caixin manufacturing PMIs, bodes poorly for exports.” China’s economy is slowing as a result of its strict coronavirus controls, with pressure mounting on its housing sector and on consumption. This week, the World Bank cut China’s 2022 gross domestic product growth forecast to 2.8 per cent from 5 per cent, largely due to the impact from its zero-Covid policy. China’s shared wealth drive to get fresh ‘strategic goal’ push at key congress Also on Friday, the Caixin/Markit manufacturing PMI fell to 48.1 in September from 49.5 in August , marking the second month of contraction. “Surveyed enterprises said the pandemic was still the greatest factor of impact,” said Wang Zhe, senior economist at Caixin Insight Group. “The pandemic situation is still severe and complex, and the negative impact of Covid controls on the economy is still pronounced.” Additional reporting by Ralph Jennings