China’s Manufacturing Activity Declines in September

BEIJING (Reuters) – China's manufacturing activity shrank sharply in September as new orders at home and abroad cooled, pulling down factory owners' confidence to near record lows, according to a private-sector survey released on Monday.

The Caixin/S&P Global manufacturing PMI fell to 49.3 in September from 50.4 the previous month, missing analysts' forecasts in a Reuters poll of 50.5. This reading marks the lowest since July last year.

In response to the slowdown, Chinese authorities unveiled aggressive stimulus measures last week, lowering interest rates and injecting liquidity into the banking system, aiming to steer economic growth back towards this year's target of roughly 5%.

During an unusual September Politburo meeting focused on macroeconomic issues, China's top leaders acknowledged that the economy was facing "new problems" and called for fresh policies to stimulate growth more forcefully.

Despite production expanding for the 11th consecutive month in September, new orders fell significantly compared to August’s gains. The sub-index for new orders recorded its lowest level in two years.

While exports had previously been a bright spot for the economy, new orders from abroad declined at the fastest pace since August last year. Chinese manufacturers reported that a deterioration in foreign demand contributed to the drop in export orders. The U.S. has implemented steep tariff hikes on Chinese products, including electric vehicles, and the European Union is expected to decide on potential EV tariffs soon.

Overall confidence among manufacturers was affected by concerns regarding the global trade outlook, with optimism falling to the second lowest level since data collection began in April 2012. The lowest point was recorded during June 2019 amid the Sino-U.S. trade tensions of the Trump administration.

The slowdown in demand resulted in a decline in average input prices, adding to reduced charges in September due to intensified competition. Additionally, firms lowered their workforce in response to reduced workload and cost management concerns; the rate of job shedding was the fastest in five months.

The Caixin survey primarily covers smaller, export-oriented firms.