China September factory output expands; property sector drags

SINGAPORE (ICIS)–China’s manufacturing sector returned to expansion mode in September, based on official data, pointing to signs of stabilization in the world’s second-biggest economy following a raft of stimulus measures introduced in recent months.

• Official Sept PMI above 50 for first time in five months
• Strong oil prices push up production cost
• Property slump to continue

Its official manufacturing purchasing managers’ index (PMI) in September rose to 50.2 from 49.7 in August, according to the National Bureau of Statistics (NBS).

A PMI reading above 50 indicates expansion while a lower number denotes contraction.

“The latest PMI reports and data releases earlier suggest that China’s economy continued to stabilise with stronger monetary and fiscal policy support measures,” Singapore-based UOB Global Economics & Markets Research said in a note on Monday.

“However, the recovery outlook remains challenging with private sector and smaller firms staying under pressure,” it said.

The official PMI’s production sub-index rose to 52.7 in September from 51.9 in August, while the new orders sub-index ticked up to 50.5 in September from 50.2.

The new export orders sub-index last month improved to 47.8 from 46.7 in August but remained in contractionary territory, indicating continued weakness in external demand.

CAIXIN CHINA SEPT PMI EASES BUT REMAINS ABOVE 50
A joint private-sector survey conducted by Chinese media group Caixin and S&P Global of Chinese manufacturers also posted an expansionary reading of 50.6 in September, but the number slipped from August’s 51.0.

“Output and total new orders both expanded for the second straight month [in September]. But overseas demand remained weak, with the gauge for new export orders remaining below 50,” Caixin Insight Group senior economist Wang Zhe said.

The Caixin PMI surveys small and medium-sized enterprises (SMEs) and export-oriented enterprises located in eastern coastal regions, while the official PMI covers larger state-owned enterprises.

Rising prices of chemicals, crude oil, industrial metals and other raw materials last month pushed up input costs to the highest since January, Wang noted.

Oil prices have risen about 30% in the third quarter, driven up by production cuts by OPEC and its allies.

At 05:05 GMT, Brent crude was trading higher by 13 cents at $92.33/bbl.

“We expect the manufacturing PMI [of China] to stabilize at near 50.0 for a couple of months, due partially to restocking demand for raw materials amid rising energy and commodity prices,” Japan’s Nomura Global Markets Research said in a note.

“However, rising prices in upstream sectors may exert some pressure on downstream sectors amid still-sluggish final demand,” it said.

Meanwhile, China’s official services PMI rose to 50.9 in September from 50.5 in August, led by industries such as telecommunications, IT (information technology) and financial services.

However, the transportation, accommodation and catering sectors, which led the service sector recovery earlier this year, all fell into the contractionary territory, pointing to fading pent-up travel demand after the summer.

PROPERTY SLUMP CONTINUES
Construction expanded at a faster rate with an official September PMI reading of 56.2, up from 53.8 in August, as China pushes for completion of pre-sold homes as it seeks to defuse the risks associated with the hidden debts of local governments.

China has been introducing measures to rev up its flagging economy amid a severe property sector downturn and weak household consumption.

On 1 September, the People’s Bank of China (PBoC) announced for the first time this year a reduction of the amount of foreign currency deposits banks are required to hold as reserves, freeing up yuan (CNY) 500bn, in its bid to boost consumption.

In late August, the government introduced support measures for the property sector and expanded tax breaks for child and parental care and education for this year.

The fresh policy measures may be beginning to bear fruit, with China’s new home prices in September rising inching up by an average of 0.05% from August, reversing a four-month decline, according to a survey by Chinese research firm China Index Academy.

New home sales among China’s 100 biggest real estate companies continued to contract, but the pace of year-on-year decline eased in September to 29.2% compared with August’s 33.9%, based on preliminary data from the China Real Estate Information Corp (CRIC) on 30 September.

Their contract sales volumes in September declined by 34.1%, narrower than the 42.4% fall in August, the data showed.

“The sequential improvement was led by top-tier cities, especially in Beijing and Shanghai, which could further squeeze low-tier cities, where many private developers have been trapped,” Nomura noted.

“While the recent property stimulus regarding mortgage rates, down payment ratios and purchase restrictions could boost demand in top-tier cities on the margin, the positive impact could be offset by the negative spillover effects in lower-tier cities,” it added.

Focus article by Nurluqman Suratman

Thumbnail image: A general view of residential buildings in Beijing, China, 11 September 2023. (By WU HAO/EPA-EFE/Shutterstock)