Global markets held hope that China’s all-important manufacturing sector had bottomed out last month, after rounds of government stimulus measures.
Last week’s official China purchasing managers index (PMI) figures appeared to confirm the optimism, with September PMI rising modestly to 49.8, up from August’s reading of 49.7. While any reading below 50 indicates month-over-month contraction, the official government data suggested that manufacturing weakness was stabilizing.
Then came the private Caixin/Markit PMI (formerly HSBC PMI) reading of 47.2 on Thursday, Oct. 1, as companies cut output at the fastest rate in six and a half years. Those figures were down from 47.3 in August.
The report cited a sharper contraction of manufacturing output in September driven by worsening business conditions and lowered client demand leading Chinese firms to cut production. This led to lower purchases of raw materials and inputs for the third consecutive month, and Caixin said September’s reduction in employment was the fastest seen in 80 months.
“Tepid demand is a main factor behind the oversupply of manufacturing and why it has not recovered,” said Dr. He Fan, chief economist at Caixin Insight Group.
