In a promising development, China’s factory activity has experienced growth for the first time in six months, according to an official survey released on Saturday. This resurgence adds to a series of indicators that suggest the world’s second-largest economy may be finding its footing after a period of decline. The Purchasing Managers’ Index (PMI), based on a survey of major manufacturers, climbed to 50.2 in September, up from 49.7 in the previous month. This figure exceeded expectations and crossed the 50-point threshold, indicating a shift from contraction to expansion in economic activity.
The PMI is a critical metric used to gauge the health of a nation’s manufacturing sector. It provides valuable insights into economic trends, as well as early signals of potential growth or contraction. The rise in China’s PMI is particularly significant because it comes after a period of stagnation and uncertainty, primarily driven by the initial wave of COVID-19 restrictions.
Throughout the year, China’s economy experienced a rollercoaster ride. It initially gained momentum as strict COVID-19 policies were lifted, but this initial surge was followed by a period of uncertainty. Preliminary signs of improvement emerged in August, with several key economic indicators pointing in a positive direction. Factory output and retail sales growth accelerated, while the decline in exports and imports narrowed. Additionally, deflationary pressures began to ease, and industrial profits made an unexpected 17.2% jump in August, reversing the previous month’s 6.7% decline.
Zhou Hao, chief economist at Guotai Junan International, commented on these developments, stating, “The manufacturing PMI, plus the good industrial profit figures, suggest that the economy is gradually bottoming out.” This sentiment reflects a growing consensus among economists that China’s economic recovery is gaining momentum.
Beyond the manufacturing sector, China’s non-manufacturing PMI, which encompasses sub-indexes for the service sector and construction, also demonstrated growth, registering at 51.7 in September compared to August’s 51.0. This expansion in non-manufacturing activity further reinforces the notion of a broader economic stabilization.
The composite PMI, which combines both manufacturing and non-manufacturing activity, surged to 52.0 in September, up from 51.3. This comprehensive metric suggests that economic growth is taking hold across various sectors of the Chinese economy.
As China enters its longest public holiday of the year, known as “Golden Week,” economists are closely monitoring consumer spending trends. The holiday began with the Mid-Autumn Festival and will continue through October 6th. State media reported that passenger travel by rail reached an impressive 20 million trips on the first day of “Golden Week,” setting a new single-day record. This strong start to the holiday season aligns with authorities’ predictions of it being “the most popular Golden Week in history.”
Despite these positive indicators, China’s policymakers face ongoing challenges, most notably the property sector debt crisis, which has reverberated throughout global markets. To address this issue, authorities have introduced a series of measures aimed at stabilizing the property market, including reducing mortgage rates. However, the property sector remains precarious, with new home prices experiencing their most significant decline in ten months in August, and property investment continuing to decline for the 18th consecutive month.
The China Evergrande Group, the world’s most indebted property developer with over $300 billion in liabilities, announced that its founder was under investigation for suspected “illegal crimes.” These developments have raised concerns about the broader health of China’s property sector.
The Asian Development Bank recently adjusted its economic growth forecast for China in 2023, lowering it to 4.9% from the previously projected 5.0% due to the property sector’s weakness. Analysts assert that further policy support will likely be necessary to ensure China achieves its government-set growth target of approximately 5% for the year.
Zhiwei Zhang, chief economist of Pinpoint Asset Management, emphasized the importance of fiscal policy going forward, saying, “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.”
In conclusion, China’s recent economic rebound, as indicated by the growth in factory activity and other key metrics, offers a glimmer of hope for the world’s second-largest economy. While challenges remain, particularly in the property sector, the resilience and adaptability of China’s economy continue to be on display as it navigates through uncertain times. Policymakers will likely play a crucial role in supporting and sustaining this recovery.
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