Chinese manufacturing continues to contract in September
October 1, 2015, 4:40 pm   

Factory activity in China continued to contract in September, according to the government`s official manufacturing survey.

Although the manufacturing purchasing managers` index (PMI) rose slightly to 49.8, up from 49.7 in August, the sector contracted for the second consecutive month.

A number below 50 indicates that factory activity contracted.

China`s vast manufacturing sector has been struggling to regain momentum.

The official PMI figure was a touch better than the 49.6 expected by economists.

Cloudy outlook

Even though this month`s reading was slightly better than forecast, it still shows that economic conditions in China remain under a cloud.

The world`s second-largest economy is on track to expand at its slowest pace in a quarter of a century.

The government expects China to grow by 7% this year, but a spate of weak economic data has raised questions about whether that target will be achieved.

"Two straight months of manufacturing sector contraction with a depressed equity market suggests China`s third-quarter GDP growth is likely to have slowed to 6.4%," economists at ANZ said.

ANZ believe that growth could pick up again later this year as stimulus measures and higher government spending gradually take effect.

Julian Evans-Pritchard, economist at Capital Economics, said: "We expect sentiment to begin to improve gradually over the coming months as the stock market stabilises and recent policy support measures continue to feed through into stronger economic activity."

Official vs private

The official PMI data looks at activity amid larger manufacturers, while a private survey from Caixin and Markit focuses on smaller to medium-sized companies in the sector.

The final Caixin/Markit manufacturing PMI for September fell to a six-and-a-half year low of 47.2, but it was better than a preliminary reading of 47 released last week.

Asian markets reacted positively to the closely watched Chinese data, with the Hang Seng in Hong Kong rising 1.4% in afternoon trade and Tokyo up 1.9%.

Chinese markets are closed until 7 October for public holidays.


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