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China’s manufacturing activity fell unexpectedly in October, dampening hopes of increasing momentum in the world’s second-largest economy.
The country’s official manufacturing purchasing managers’ index came in at 49.5 this month, missing forecasts and falling short of a reading of 50.2 in September. A value below 50 means a decrease compared to the previous month.
The decline, which wiped out last month’s return to recovery, dealt a further blow to policymakers under pressure to address a slowdown in the country’s economically crucial real estate sector and boost sluggish growth.
It also followed better-than-expected gross domestic product growth of 4.9 percent year-on-year in the third quarter, raising hopes that China’s economy was turning around after low post-pandemic activity disappointed forecasts.
“Until this latest data release, things were looking better,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
He added that the combined manufacturing and non-manufacturing data was “the worst on record if you ignore Covid lockdowns”, pointing out that the services sector showed “barely any growth”.
The non-manufacturing PMI came in at 50.6 on Tuesday, remaining in expansionary territory but rising at the slowest pace this year. Economists polled by Bloomberg had forecast a reading of 52, after reaching 51.7 in September.
Robert Carnell, head of Asia-Pacific research at ING, wrote in a note that the PMI numbers represented a “mild shock” and suggested the economy was “still struggling” despite the latest GDP numbers.
China’s economy showed further signs of growth, growing 1.3 percent quarter-on-quarter, well above the April-June rate of just 0.5 percent.
China’s manufacturing PMI numbers edged above 50 in September after declining for five straight months as disappointing trade, retail and real estate data dashed expectations of a boom after pandemic restrictions were lifted in January .
The government has targeted economic growth of 5 percent for 2023, the lowest official target in decades.
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The real estate sector has come into renewed focus in recent weeks as Country Garden, once China’s largest private property developer by revenue, defaulted on its international debts.
A restructuring plan at Evergrande, whose default two years ago contributed to an industry-wide liquidity crisis, was scrapped at the last minute, citing regulatory constraints.
Separate manufacturing and non-manufacturing indices from private data provider Caixin will be released on Wednesday.
The weaker official figures will increase pressure for further fiscal stimulus from Beijing. Policymakers have gradually eased monetary conditions by slightly cutting interest rates and easing some restrictions on property purchases that were intended to prevent prices from overheating.