China’s Economy Faces Headwinds as Factory Activity Contracts
Shanghai cityscape at night.
China’s factory activity contracted for a second consecutive month in November, while non-manufacturing activity hit another new low for the year, signaling that the world’s second-largest economy is facing challenges and may need more robust policy support.
The official manufacturing purchasing managers’ index (PMI) unexpectedly fell slightly to 49.4 in November from 49.5 in October, as reported by data from the National Bureau of Statistics. This was below the median forecast of 49.7 in a Reuters poll and indicates a contraction in manufacturing activity.
The official non-manufacturing PMI also slipped to 50.2 in November from 50.6 in October, signaling the weakest reading since December 2022.
Market Demand and Business Confidence
According to Zhao Qinghe, a senior statistician at the Service Industry Survey Center of the National Bureau of Statistics, more than 60% of manufacturing companies reported insufficient market demand as the primary difficulty affecting the industry’s recovery and development. However, business confidence is improving, with the expectation index for production and operating activities in manufacturing standing at 55.8.
Encouraging Signs and Weakness in Non-Manufacturing Sectors
While three of the five sub-indexes for the manufacturing PMI declined in November from the previous month, there were some encouraging signs in high tech and equipment manufacturing, both of which recorded expansions. However, non-manufacturing sectors showed weakness, particularly in service industries like real estate, leasing, and business services, which pointed to further contraction.
Despite stronger-than-expected economic growth in the third quarter, economic data remains patchy and uneven, reflecting the fragility of China’s vast economy as Beijing engineers a deleveraging of the once-bloated real estate sector.
The latest PMI data suggests that the Chinese economy is not yet out of the woods and may require additional support in the form of policy measures to drive growth and stabilize the economy. The outlook for the coming months will depend on how the Chinese government responds to the ongoing economic challenges.