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By Micah McCartney
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The world's second-largest economy remained on shaky ground last month, one key indicator suggested, with China's policymakers now pinning their hopes on a sweeping new stimulus package.
Factory production levels may have weakened for the fifth straight month, according to the Chinese statistics bureau's official Purchasing Managers' Index (PMI) for September.
The PMI composite index is widely regarded as a barometer of economic activity within the sector. It's calculated from five weighted sub-indices based on responses from industry purchasing managers in monthly surveys. A PMI reading above 50 indicates industry expansion compared to the previous month, while a score below 50 signals contraction.
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The headline PMI for September came in at 49.8, though was a slight improvement over August's 49.1. Since September 2023, the PMI has only exceeded the critical point during three months, peaking at a modest 50.8 in March.
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Production was the only subindex to show clear growth last month, with manufacturing output rising to 51.2, up from 49.8 in August.
New orders saw some improvement but remained in contraction territory at 49.9, 1 point higher than the previous month, in a sign demand is still sluggish.
Supplier delivery times dipped from 49.6 to 49.5. While this may indicate slightly faster deliveries, typically a positive sign, it could also suggest softening demand.
Inventories of finished goods stood at 48.4, down by 0.1 points month-on-month. This could mean businesses are seeing demand outpace supply or that they're deliberately keeping inventories lean due to cautious market outlooks.
The employment sub-index remained weak at 48.2, marking its 13th consecutive month of contraction, another sign of persistent stagnation in the industry.
Meanwhile, the PMI for China's non-manufacturing sector, which includes services and construction, registered a neutral 50.0, a slight decline from 50.3 in August and the lowest level since September 2023.
Chinese analysts noted that, while the manufacturing sector remains below the 50-point threshold, September's PMI reading was the highest since April.
State media outlet Xinhua cited National Bureau of Statistics statistician Zhao Qinghe as saying the latest data reflects some improvement in overall economic conditions and a pick-up in business production.
Policymakers have been rolling out various initiatives earlier this year aimed at boosting domestic demand, which has struggled to recover after China's strict pandemic lockdowns ended in late 2022.
These measures have included trade-in programs encouraging consumers to upgrade older electronics and home appliances. Additionally, Beijing has also introduced approximately $43 billion in long-dated bonds aimed at supporting indebted local governments and drive growth through large-scale infrastructure projects.
Headwinds such as the ongoing real estate crisis and high youth unemployment continue to buffet the economy, with Goldman Sachs and Citigroup recently revising down their GDP growth forecasts to 4.7 percent for 2024.
Amid growing calls for more substantive intervention, China's top financial regulators and the central bank last week unveiled their most ambitious stimulus package since the pandemic.
Chinese stocks on Monday soared in the biggest single-day rally since 2008 on the back of the measures, which include cuts to the reserve requirement ratio for banks, freeing up more capital for loans to businesses and consumers. Banks have also been directed to reduce mortgage rates for existing home loans by October 31.
However, some analysts say the relief plan doesn't go far enough to address the root causes of the economic malaise.
"China's economy needs Keynesian-style consumption stimulus, tax reform and greater government intervention to stabilize home sales and manage losses," Economist George Magnus, associate at the University of Oxford China Centre, previously told Newsweek. He likened the package to "administering painkillers to someone who needs surgery."
Update 10/1/24, 7:10 a.m. ET: This article has been updated with extra context.
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