China’s manufacturing activity rebounds in October

But employment levels fell to the lowest level since May 2023.

Operating conditions in China’s manufacturing sector rebounded in October from the previous month’s brief decline, a survey compiled by S&P Global disclosed November 1.

The headline seasonally adjusted Caixin China General Manufacturing Purchasing Managers Index (PMI) climbed to 50.3 in October up from 49.3 in September. Rising above the 50.0 neutral mark, the latest data revealed that conditions in the manufacturing sector have improved.

Behind the latest surge in manufacturing sector conditions was renewed business growth. Incoming new orders placed with Chinese manufacturers rose at the quickest pace in four months, owing to better underlying demand conditions and successive new business development endeavours.

However, the export orders remained in decline but saw the rate of reduction ease in the latest survey period. 

Due to higher new work inflows, manufacturing production expanded at an accelerated pace. Confidence also improved among Chinese manufacturers as optimism levels increased from September’s low to the highest level in five months. Firms were generally optimistic that better economic conditions and R&D efforts could help support sales in the year ahead.

In response to the uptick in new work, purchasing activity rose, leading to further accumulation of purchases. Post-production inventory holdings also increased in tandem as production expanded. Anecdotal evidence indicated that some firms began to rebuild safety stock in October, expecting higher future demand.

Manufacturers however were cautious about hiring given the non-replacement of job leavers resulting in the quickest fall in employment levels since May 2023, with widespread declines in staffing among companies producing investment goods. In turn, the level of unfinished work increased in October amid the reduction in workforce capacity.

“The Caixin China General Manufacturing PMI came at 50.3 in October, up 1 point from the previous month. This marks a return to expansion in the manufacturing sector,” commented Dr Wang Zhe, senior economist at Caixin Insight Group.

Supply and demand expanded, and the overall market demand recovered while production grew steadily. In October, Zhe pointed out that the output subindex remained in expansionary territory for the 12th consecutive month, reaching a new high for this year’s second half. The subindex total new orders returned to positive territory, reaching its highest level since June. Meanwhile, the production and sales of intermediate goods were strong, but consumer goods production lagged. 

But external demand remained weak. The gauge for new export orders stayed in contractionary territory for the third consecutive month, reflecting sluggish global economic conditions, which weighed specifically on exports of investments and consumer goods.