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Economic News

China’s Manufacturing PMI Contracts Unexpectedly

October 31, 2023
Marc-Antoine Dumont
Senior Economist

Highlights

  • China’s composite PMI fell 1.3 points in October, from 52.0 to 50.7.
  • The manufacturing index dropped below 50 points to 49.5. The production and new orders components also declined to 50.9 and 49.5, respectively. Inventories of finished goods was the only manufacturing index component that rose.
  • The non-manufacturing index fell 1.1 points, from 51.7 in September to 50.6 in October. Despite the decline in the construction and services sub-indexes, they remain above the 50-point mark at 53.5 and 50.1, respectively.

Comments

After two months of PMI gains and stronger-than-expected real GDP growth in the third quarter, forecasters were confident that the recovery was well underway. However, this latest decline is a reminder that China is facing several headwinds, including a stagnating real estate market, high local government debt and weaker global economic activity. In addition, the decline in the new orders component—which is below 50 points in the manufacturing and non-manufacturing indexes—reflects weak demand and a fragile recovery. However, there are some positives. The commodity price component fell 6.8 points to 52.6 in October, which is expected to help moderate consumer goods prices around the world.

Implications

The unexpected contraction in the manufacturing index is evidence that China’s growth remains fragile and that its economic recovery is likely to be uneven. Although this is a bad start to the fourth quarter, there’s still time for the economy to catch up. Going forward, the government is expected to continue building on its support by announcing new stimulus measures. However, if these measures fail to adequately address core issues such as local government debt, China will simply be creating long-term challenges to achieve short-term gains.