China’s Manufacturing Activity Declines in September

BEIJING (Reuters) – China’s manufacturing activity shrank sharply in September as new orders, both domestically and internationally, cooled, leading to a significant drop in factory owners’ confidence, according to a private-sector survey released on Monday.

The Caixin/S&P Global manufacturing PMI decreased to 49.3 in September, down from 50.4 in August, falling short of analysts’ forecasts of 50.5 in a Reuters poll. This reading represents the lowest level since July of the previous year.

In response to the economic slowdown, Chinese authorities implemented aggressive stimulus measures last week, which included lowering interest rates and injecting liquidity into the banking system, as Beijing aimed to steer economic growth back towards a target of approximately 5% for the year.

During an unusual September Politburo meeting focused on macroeconomic issues, China’s top leaders recognized that the economy was encountering “new problems” and called for new policies to more “forcefully” stimulate growth.

Despite production continuing to expand for the 11th straight month in September, new orders saw a significant decline compared to August’s gain. The sub-index for new orders reached its lowest point in two years.

While exports remained a bright spot for the economy, new orders from abroad fell at the fastest rate since August of last year. Manufacturers noted that decreasing foreign demand was responsible for the decline in export orders.

The United States has imposed steep tariff increases on various Chinese products, including electric vehicles (EVs), while the European Union is expected to make a final decision on potential tariffs for EVs in the near future.

Overall confidence among manufacturers was shaken by concerns regarding the global trade outlook, with optimism decreasing to the second lowest level recorded since the data collection began in April 2012. The confidence level hit its lowest point during the Sino-U.S. trade disputes under the Trump administration in June 2019.

The decline in demand contributed to a decrease in average input prices, resulting in reduced charges in September. Export charges also eased due to intensified competition.

In light of the reduced workload and cost concerns, firms responded by lowering their headcount, with the pace of job losses reaching the fastest rate in five months.

The Caixin survey is believed to reflect the conditions of smaller, export-oriented firms.