China’s economy still under pressure as manufacturing falls

Activity in China’s manufacturing sector unexpectedly contracted in October for a third straight month, an official survey showed yesterday, fuelling fears that the economy may still be losing momentum despite a raft of stimulus measures.

Adding to those concerns, China’s services sector, which has been one of the few bright spots, also showed signs of cooling, expanding at its slowest pace in nearly seven years.

During the summer, a $4 trillion (€3.63tn) sell-off in China’s stock market rocked the world and raised fears that the economy was slowing rapidly. The official Purchasing Managers’ Index(PMI) was at 49.8 in October, the same pace as in the previous month and lagging market expectations of 50, according to the National Bureau of Statistics. A reading below 50 points suggests a contraction. “While the PMI has stabilised, it is too early to confirm a bottoming out,” economists at ANZ Bank said.

New export orders contracted for a 13th straight month, though the sub-index for new orders — a proxy for both domestic and foreign demand — edged up marginally. Major Chinese construction machinery maker Sany Heavy Industry said on Friday it had swung to a loss in the third quarter, affected by a glut of unsold equipment. As for the services sector, whose growth has helped offset persistent weakness in manufacturing, the official non-manufacturing PMI fell to 53.1 in October.

Though still a solid pace, it was the lowest reading since late 2008 during the global financial crisis, a similar survey showed. Activity in small and mid-sized firms continued to contract in October, with more small firms seeing fund shortages compared to big ones, the official survey showed.

Chinese leaders have been trying to reassure jittery global markets for months that the economy is under control after a shock devaluation of the yuan and a summer stock market plunge fanned fears of a hard landing.

But China is firmly committed to restructuring and reforms and consumption has “a lot of room” to grow, Premier Li Keqiang said yesterday, dismissing concerns that the economy may be at risk of a hard landing. “The Chinese economy will maintain a mid-to-high-level of growth for quite some time in the future,” Li said, during an official visit to South Korea. “We believe Chinese consumption is at half (its capacity),” he said.

Reuters and Bloomberg