Factory Activity Expansion Surprises Economists

China's factory activity unexpectedly expanded in September, helped by a series of recent easing measures, but gains were marginal as the economy continued to grapple with strict Covid curbs, a deepening property crisis and softening exports growth.

A sharp slowdown in services sector growth and a downbeat private manufacturing survey also suggested the economy is struggling to regain traction after narrowly avoiding contraction in the second quarter.

The official manufacturing purchasing managers' index (PMI) rose to 50.1 in September from 49.4 in August, the National Bureau of Statistics (NBS) said on Friday.

The gauge beat expectations for 49.6 in a Reuters poll of economists, and was above the 50-point mark that separates contraction from growth.

However, the private Caixin survey released on Friday showed factory activity contracted at a sharper pace in September, with indexes for output, new orders and employment all declining due to weak demand.

Growth in the services sector also slowed sharply, with the official non-manufacturing PMI falling to 50.6 in September from 52.6 in August. The official composite PMI, which includes manufacturing and services, fell to 50.9 from 51.7.

Beijing has rolled out more than 50 policy measures since late May, but repeated Covid lockdowns, a property crisis and flagging export demand have weighed heavily on business and consumer confidence.

The new export orders index under the official manufacturing PMI survey dropped to 47 from 48.1 in August. External demand has been hit by rising interest rates, high inflation and the war in Ukraine.

Stricter coronavirus measures in multiple cities, including the tech hub of Shenzhen and mega city Chengdu, contributed to falls in business confidence in the manufacturing sector.

With few signs China will significantly ease its zero-Covid policy soon, many analysts expect the economy to grow by just 3 percent this year. That would be the smallest growth since the 2.2 percent expansion in 2020, at the height of the Covid-19 pandemic, which was the slowest rate since 1976.

Premier Li Keqiang was quoted by state media on Wednesday as saying China's economy generally recovered and stabilised in the third quarter.

The government has vowed to push ahead with the implementation of policy support in the fourth quarter. (Reuters)