Chinese factory activity declines

China’s factory activity unexpectedly fell to a five-month low in October as firms fought slowing orders and rising costs.

The official Purchasing Managers’ Index (PMI) eased to 50.8 in October from September’s 51.1, the National Bureau of Statistics said on Saturday, but above the 50-point level that separates growth from contraction on a monthly basis.

Analysts polled by Reuters had forecast a reading of 51.2.

Underscoring the challenges facing the world’s second-largest economy, the PMI showed foreign and domestic demand slipped to five- and six-month lows, respectively, with overseas orders shrinking slightly on a monthly basis.

“There remains downward pressure on the economy, and monetary policy will remain easy,” economists at China International Capital Corp said .

Noting that inventory levels of unsold goods rose last month even as factories cut output levels and drew down on stocks of raw materials, the investment bank argued that the economy still faced tepid demand.

It has been a tough year for China’s economy. Growth fell to 7.3% in the third quarter, its lowest level since the 2008/09 global financial crisis, as the housing market sagged and domestic demand and investment flagged.

The cool-down, expected to be China’s worst in 24 years this year according to a Reuters poll, came despite a flurry of government support measures.

Saturday’s PMI suggested no imminent recovery in demand. An index for new orders —a proxy for foreign and domestic demand — retreated to 51.6 in October from September’s 52.2. New export orders edged down to 49.9 in October, pointing to a contraction, from 50.2 in September.

The PMI followed warnings from China’s industrial ministry on Friday that factories were under pressure from high borrowing costs, which were further exacerbating the sector’s slowdown.

Like other economies around the world, smaller-sized companies in China are often ignored by banks when they need financing, forcing them to turn to pricier alternatives for funds.

Still, the PMI showed big Chinese factories were weathering the downturn better than their smaller counterparts, as banks prefer to lend to larger state-owned firms.

Reuters