China’s economy is showing signs of weakening, according to recent factory surveys released on Monday, as Beijing increases efforts to provide support. The Caixin purchasing managers survey revealed that new manufacturing orders experienced the sharpest decline in two years in September. Additionally, an official measure by the National Bureau of Statistics showed a less severe drop but still indicated a fifth consecutive month of contraction, with the purchasing managers index standing at 49.8 in September compared to 49.1 in August. Despite the slight improvement, the index remains below 50, which signifies expansion in the economy.
Factory output increased while new orders decreased, leading to concerns about the imbalance between supply and demand. The Chinese stock markets responded positively to a series of policy announcements made the previous week, including reductions in interest rates, lower down payment requirements for mortgages, and cuts in required bank reserves. The smaller market in Shenzhen saw an 8.2% surge, while the Shanghai Composite index rose by 5.7%.
Economist Gabriel Ng from Capital Economics stated that the stimulus package introduced should help to bolster activity in the coming months. However, he highlighted ongoing challenges such as excess supply and weak demand, exacerbated by trade measures like higher tariffs on certain Chinese goods. Ng suggested that substantial fiscal stimulus would be necessary for a meaningful recovery. Despite no official announcement on fiscal support, reports suggest that one may be forthcoming soon.
Over the weekend, Beijing implemented the measures announced earlier to support the property sector and rejuvenate financial markets. The central bank directed banks to reduce mortgage rates for existing home loans by the end of October. Additionally, Guangzhou removed all restrictions on home purchases, while Shanghai and Shenzhen outlined plans to ease key buying constraints. The property industry has faced difficulties since the government cracked down on excessive borrowing, resulting in falling housing prices and delayed construction projects. This decline has had a ripple effect throughout various industries reliant on the property sector’s growth.
China’s economy expanded by 4.7% in the last quarter, slightly below the government’s target of around 5%. The ongoing challenges in the property sector and broader economic context underscore the need for continued support and stimulus measures to navigate through the current downturn.