Caixin China Manufacturing PMI recorded 49.5 in October

China’s manufacturing demand expanded for the third consecutive month in October, but weak external demand caused manufacturing companies to reduce supply and the manufacturing boom declined.

The Caixin China Manufacturing Purchasing Managers Index (PMI) for October 2023, released on November 1, recorded 49.5, a decrease of 1.1 percentage points from September, returning to the contraction range.

This trend is consistent with the National Bureau of Statistics Manufacturing PMI. The manufacturing PMI previously announced by the National Bureau of Statistics in October 2023 recorded 49.5, down 0.7 percentage points from September, and also fell below the boom-bust line.

Judging from the sub-indices, manufacturing demand expanded slowly and supply contracted in October. The manufacturing new orders index remained in the expansion range for the third consecutive month, but the growth rate slowed down, indicating that the pace of demand expansion is slowing down. The new export orders index is still below the boom-bust line. Companies generally say that the weak global economy combined with high prices has led to a setback in sales in overseas markets. Manufacturing companies have reduced supply accordingly, and the production index has dropped below the boom-bust line.

With weakening market sentiment and the need to cut costs, manufacturing companies continue to choose to reduce employment, and the employment index has recorded a contraction for the seventh time in the past eight months. According to surveyed companies, the employment situation of consumer goods, investment goods, and intermediate goods manufacturers has deteriorated.

Output fell, customer demand was relatively sluggish, and corporate purchases fell, so raw material inventories decreased. Finished goods inventories increased significantly due to lower-than-expected sales and delays in shipments.

Both the manufacturing purchase price index and factory-factory price index in October were in the expansion range, but the price increase was not large. The increase in cost-side pressure comes from the rise in raw material and crude oil prices; the increase in sales prices comes more from the transmission of costs. Considering that market demand is still weak, companies have limited room to raise prices.

The manufacturing production and operation expectation index fell slightly in the expansion range in October. Companies that are optimistic about production prospects generally mention factors such as the release of new products, the development of new export markets, and the expected strengthening of the economy; other companies are worried about weak external demand and overall market conditions are still poor.

Wang Zhe, senior economist at Caixin Think Tank, said that the manufacturing industry was not very prosperous in October. Domestic demand maintained an expansion trend but at a slower pace, and supply, employment, and external demand all declined to varying degrees. The economy showed signs of bottoming out in the third quarter, but the foundation for economic recovery is still not solid. At the policy level, based on a number of previous policies to promote consumption, expand investment, and stabilize expectations, the central government recently decided to issue an additional 1 trillion yuan in government bonds to support post-disaster reconstruction and improve disaster prevention, reduction, and relief capabilities. This part of infrastructure construction investment will help stabilize the economy, but the transmission effect on the increase in residents’ income and the improvement in employment and expectations requires further observation.