Growth in China's factory activity cools in October

China's monthly official factory survey also showed unexpected weakness in new export orders, which had been expected to pick up heading into the peak year-end shopping season.
China's monthly official factory survey also showed unexpected weakness in new export orders, which had been expected to pick up heading into the peak year-end shopping season.PHOTO: AGENCE FRANCE-PRESSE

PMI down amid weakening real estate market, pollution controls

BEIJING • Growth in China's manufacturing sector cooled more than expected last month in the face of a weakening property market and tighter pollution rules that are forcing many steels mills, smelters and factories to curtail production over the winter.

While still easily in expansion territory, China's monthly official factory survey also showed unexpected weakness in new export orders, which had been expected to pick up heading into the peak year-end shopping season.

The data gives global investors their first look at business conditions in China at the start of the fourth quarter, with the government's punishing war on smog adding to uncertainty amid early signs of a slowdown in the world's second-largest economy.

The official Purchasing Managers' Index (PMI) released yesterday fell to 51.6 last month, from 52.4 in September, which was the strongest in over five years.

It was the weakest reading in three months, but remained above the 50-point mark that separates growth from contraction.

Analysts surveyed by Reuters had forecast the PMI would fall slightly to 52.0, but still point to growth in the sector for the 15th straight month.

A recovery for China's manufacturing and industrial firms - boosted by government spending, a resilient property market and unexpected strength in exports - has helped the economy post better-than-expected growth of nearly 6.9 per cent through the first nine months of this year.

While still easily in expansion territory, China's monthly official factory survey also showed unexpected weakness in new export orders, which had been expected to pick up heading into the peak year-end shopping season.

Profits for China's industrial powerhouses surged 27.7 per cent in September, the most in nearly six years, as environmental inspections and the start of plant closures in smog-blighted northern provinces sparked fears of supply shortages and sent prices of finished goods like steel and copper soaring.

Earnings have been boosted by surging factory gate prices, but the latest survey shows input price gains slowed considerably, with the reading at 63.4 against 68.4 in September and the weakest since July.

Output price gains also slowed, reflecting concerns that higher commodity prices have not trickled down to higher prices and profit margins for downstream industries.

Prices of steelmaking raw materials such as iron ore and coking coal have started to dive on fears of excess supply as the winter output curbs kick in, which should start to weigh on mining companies.

The latest pollution closures come on top of ongoing government efforts to trim and upgrade the country's bloated industrial sector by shutting down outdated capacity, which has also helped support producer prices.

The official non-manufacturing PMI fell to 54.3 from 55.4 in September, which was the strongest reading since May 2014.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 01, 2017, with the headline 'Growth in China's factory activity cools in October'. Print Edition | Subscribe