China's factory activity marks third contraction in four months

BEIJING: China's factory activity unexpectedly dropped in October, its third contraction in four months, a government survey showed on Saturday (Oct 31), hurt by soft demand for exports as well as goods at home.

The official manufacturing purchasing managers' index (PMI) fell to 49.3 from 50.1 in September, according to data from the National Bureau of Statistics. That missed a forecast for 50.0 from a Reuters poll.

Factory activity weakened as overseas Christmas-related orders, which were front-loaded in September, cooled in October. It was also hurt when consumer spending, which climbed during China's long National Day holiday in the first week of October, fizzled out after, in a return to its long-stagnant state.

"Insufficient demand is increasing downward pressure on the economy," said Zhang Liqun, an analyst with the China Federation of Logistics & Purchasing, adding that policymakers should take the problem seriously and step up measures as soon as possible.

Sub-indexes for new orders overall and for new export orders both stayed in contraction territory in October. Production and purchasing activity also slipped into contraction from expansion.

The non-manufacturing PMI, which covers services and construction, also dropped to 49.7 from 50.2 in September.

The readings are compiled based on purchasing managers' reports about whether conditions improved, worsened or were unchanged in areas such as new orders, output and employment compared with the previous month. A reading above 50 signals expansion, while one below 50 indicates contraction.

Some sectors within manufacturing were doing well.

Production and new orders sub-indexes for railway, shipbuilding, aerospace equipment, and computer, communications and electronics manufacturing were all at or above 53.0, the survey showed.

AI-related firms in particular have reported strong earnings growth. Zhongji Innolight, a maker of high-speed optical modules that connect servers and switches in AI data centres, posted a near tripling in third-quarter net profit.

But the lacklustre domestic market and rising costs have weighed on many old-school manufacturers and property-linked firms. Custom furniture maker Oppein Home, for example, saw net profit plunge 80 per cent during the quarter.

China's economy is, however, expected to meet the country's 4.5-5.0 per cent annual growth target without additional stimulus measures after third-quarter growth rebounded to 4.5 per cent from 4.3 per cent in April-June.