China Factory Gauge Stable at Post-2014 High as Services Pick Up

  • Manufacturing PMI at 50.4 for 2nd month, services rise to 53.7
  • New export orders gain to 50.1 while employment remains muted

China’s official factory gauge steadied at the highest level in almost two years while services picked up, suggesting that the economy’s stabilization continued last month and reducing prospects for additional policy easing.

Key Points

  • Manufacturing purchasing managers index remained at 50.4 in September, the National Bureau of Statistics said Saturday
  • Compares with a median estimate of 50.5 in a Bloomberg economist survey and 50.4 the prior month. Numbers higher than 50 indicate improving conditions
  • Non-manufacturing PMI rose to 53.7 from 53.5 in August
  • New export orders rose to 50.1, signaling the first expansion since April
  • On Friday, the private Caixin Media and Markit Economics China Manufacturing PMI came in at 50.1 for September, matching estimates

Big Picture

The data add to evidence of improvement as government fiscal support and a soaring property market help underpin growth. Fresh signs of stability may lead policy makers to remain on hold after keeping the benchmark interest rate at a record low for almost a year.

Economist Takeaways

"The economy is stabilizing on all the support that the government has given through monetary easing and fiscal spending," which has fueled the investment and supported more upbeat growth forecasts, said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. Still, that doesn’t necessarily mean "everything is really turning better."

"Property and infrastructure investment have propped up growth and some enterprises are becoming more profitable in the process of cutting overcapacity," said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. "Longer-term pressure still lingers. China must push forward supply-side reform and maintain stable liquidity to support the real economy."

"New exports orders have rebounded above 50, which might be related to the yuan’s depreciation against a basket of currencies" making shipments more competitive, said Tommy Xie, economist at OCBC Bank in Singapore. "It may not be the purpose that the Chinese government wants, but now it seems to be the result of a weaker yuan."

"There’s been some progress made" toward stabilization as larger companies underpinned growth, said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "The employment reading is not so encouraging. The government needs to find some way to address the unemployment stress."

The Details

  • Manufacturing employment continued to edge up but still indicated deterioration, rising to 48.6 from 48.4
  • Large enterprises rose to 52.6 while the reading for small companies retreated to 46.1
  • The foundation of manufacturing growth is still weak as companies face difficulties with operations and capacity cuts, the NBS said in a statement released with the data
  • PMI gauges are based on surveys of purchasing executives at 3,000 companies
  • Economic growth slowed to 6.6 percent in the third quarter, according to economists surveyed before a report due on Oct. 19, from 6.7 percent in prior two quarters
  • The Bloomberg Intelligence China gross domestic product tracker rose to 7.16 percent in August.

— With assistance by Lingjiao Mo, Miao Han, and Cynthia Li

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