China’s Factory and Service Sectors Decline Amid Increasing Stimulus Calls – Reuters

BEIJING (Reuters) – China’s factory activity continued to decline in September for the fifth consecutive month, while the services sector experienced a significant slowdown. This trend highlights the urgent need for more economic stimulus to meet Beijing’s growth target for 2024 with just three months remaining in the year.

According to the National Bureau of Statistics (NBS), the purchasing managers’ index (PMI) for September rose slightly to 49.8 from 49.1 in August. Although this is an improvement, it remains below the 50 threshold that distinguishes growth from contraction, although it surpassed the median forecast of 49.5 from a Reuters poll. This reading marks the highest level in five months.

The data, along with a less optimistic private-sector Caixin survey released on the same day, indicates that China’s extensive manufacturing sector continues to create challenges for policymakers, who have acknowledged the emergence of "new problems" in the economy and are advocating for more robust stimulus measures.

In response to these challenges, the central bank and top financial regulatory authorities announced new measures, urging banks to reduce mortgage rates for existing home loans before the end of October. Additionally, last week, authorities initiated the most aggressive stimulus package since the COVID-19 pandemic began.

SERVICES ACTIVITY COOLS

The non-manufacturing PMI, reflecting the services and construction sectors, fell to 50.0 in September from 50.3 in August, marking the lowest reading in 21 months. The services PMI declined to 49.9, indicating the first contraction since December of the previous year. In contrast, the construction PMI rose slightly to 50.7 from 50.6.

Reports revealed that the government intends to raise 1 trillion yuan ($142.56 billion) through special bonds to enhance subsidies for consumer goods replacement programs and upgrade business equipment. Another 1 trillion yuan is planned to be raised through a separate special debt issuance to assist local governments in managing their debt issues.

Officials noted that the current program has had a positive impact on sales of automobiles, home appliances, and home renovation products. However, the Caixin services PMI indicated a slowdown in sector activity.

As the property market downturn continues to impact the overall economic recovery, leaders at a recent Politburo meeting emphasized the necessity of stabilizing the housing market. Major cities such as Shanghai and Shenzhen are preparing to ease key home purchase restrictions, joining numerous smaller cities that have already made similar adjustments.

Analysts believe that the new stimulus measures, along with a fiscal package estimated to be around 2 trillion yuan, should help achieve growth in line with the "around 5%" target. Nevertheless, challenges such as weak demand and a deteriorating global trade environment continue to pose significant risks.