The pace of activity across China’s vast economy unexpectedly slowed last month. Manufacturing slid into contraction, services produced an unexpectedly low result, and the overall measure showed the lowest rate of expansion in 11 months.
The official survey covers large companies. Later today, the unofficial Caixin survey, which covers small and medium businesses, will be released. Last month, it was more negative than the official survey.
China’s manufacturing activity index, released by the country’s National Bureau of Statistics, fell to 49.5 in October, down from 50.2 in September. Economists say this casts doubt over the strength of recent indicators showing a weak recovery in the world’s second-largest economy.
Non-manufacturing activity showed a slowdown to a reading of 50.6, still in expansion but at a slower rate than the 51.7 reading in September.
However, the surprise was the size of the fall in the composite activity index to 50.7, still in expansion but lower than the 52 of the previous month. This was the lowest reading since December 2022, even lower than the weak months of July and August.
The slide in manufacturing activity was widespread, although business confidence rose, but output prices fell, pointing to more deflationary pressures. Output and new orders also weakened.
In the vast services sector, the reading of 50.6 marked the 10th positive month in a row but was the lowest reading this year, indicating that consumers are not spending much, despite active policy moves to encourage spending, especially on items like new energy vehicles (NEVs). Selling prices also fell in the service sector.
The composite survey results show that while expansion is still happening, it is now at a weaker rate than seen this year.
All three survey readings were a shock to markets and analysts as they were substantially weaker than forecasts. For example, manufacturing was forecasted to expand at a rate of 50.5, not the reported 49.5 contraction.
The Chinese government recently issued 1 trillion yuan in government bonds (around $US140 billion) for reconstruction activity in areas hit hard by natural disasters this year, but economists say that was not significant. The spending is for repairs and renewal of existing infrastructure and will do nothing to help alleviate the prolonged property crisis, which remains a major drag on the economy.
External headwinds, such as high energy prices, weak demand, global instability, and hesitant consumers in major export markets, have added to the challenges for the government in its efforts to boost the sluggish economy.
Since June, the government has launched numerous measures, including modest interest rate cuts and a ramp-up in cash injections from reserve ratio cuts and targeted spending, but to no avail.
The National Bureau of Statistics (NBS) stated in commentary that the foundation for the economy’s recovery needs to be further consolidated. In Chinese officialspeak, this means that more needs to be done.