China’s economy stabilises, factory activity returns to expansion

BEIJING – China’s factory activity expanded for the first time in six months in September, an official survey showed on Saturday, adding to a run of indicators suggesting the world’s second-largest economy has begun to bottom out.

The purchasing managers’ index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, edging above the 50-point level demarcating contraction in activity from expansion. The reading beat a forecast of 50.

The PMI, the first official statistics for September, adds to signs of stabilisation in the economy, which had sagged after an initial burst of momentum early in the year when China’s ultra-restrictive Covid-19 policies were lifted.

Preliminary signs of improvement had emerged in August, with factory output and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2 per cent jump in August, reversing July’s 6.7 per cent decline.

“The manufacturing PMI, plus the good industrial profit figures, suggest that the economy is gradually bottoming out,” said Mr Zhou Hao, chief economist at Guotai Junan International.

China’s non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, also rose, coming in at 51.7 versus August’s 51.

The composite PMI, including manufacturing and non-manufacturing activity, climbed to 52 in September from 51.3.

Near-term data on the radar of economists include consumer spending for the longest public holiday in 2023.

“Golden Week” kicked off on Friday with the Mid-Autumn Festival, which will be followed by the National Day break till next Friday.

Passenger travel by rail on Friday reached 20 million trips, a single-day record, state media reported on Saturday, in a bullish start to what the authorities had forecast to be “the most popular Golden Week in history”.

Property risks

More stable economic indicators will be welcomed by policymakers as they continue to grapple with

a property sector debt crisis

that has rattled global markets.

The authorities have announced a series of measures to shore up the property market, including cutting mortgage rates, but the sector is far from being out of the woods.

New home prices fell the fastest in 10 months in August, and property investment declined for an 18th straight month.

China Evergrande Group, the world’s most-indebted property developer with more than US$300 billion (S$410 billion) in liabilities, said on Thursday that

its founder was being investigated over suspected “illegal crimes”.

The Asian Development Bank recently

trimmed its 2023 economic growth forecast for China

to 4.9 per cent from a July forecast of 5 per cent due to the weakness in the property sector.

Analysts say more policy support will be needed to ensure China’s economy can hit the government’s growth target of about 5 per cent in 2023.

“China’s economy stabilised partly driven by the loosening of property sector policies,” said Mr Zhang Zhiwei, chief economist of Pinpoint Asset Management.

“The key issue going forward is whether fiscal policy will become more supportive. I think it will, but timing-wise the change of fiscal policy stance may happen next year instead of this year.” REUTERS