China factory output extends six-month downward trend through September

Factory output in China continued its downward trend through September, marking half a year of declining production as businesses hold out for additional government support and await developments in trade negotiations with Washington.

Government data released Tuesday showed the purchasing managers’ index climbed to 49.8 last month, up from August’s reading of 49.4. While this represents the strongest figure in six months, it stayed under the 50 threshold that indicates whether the sector is expanding or shrinking. Analysts surveyed by Reuters had predicted a reading of 49.6.

The extended downturn highlights two major challenges facing the world’s second-largest economy. Consumer spending at home has struggled to bounce back sustainably following the health crisis, while tariffs imposed by U.S. President Donald Trump have put pressure on Chinese manufacturing plants and international companies purchasing parts from the country.

However, a different survey focusing on private businesses painted a brighter picture. Factory managers reported the strongest growth since March, driven by increased orders and faster production rates. New business from abroad also ticked upward.

Survey split reflects different business types

The contrasting results stem from the surveys tracking different types of companies. The National Bureau of Statistics concentrates on larger state-linked enterprises that primarily serve the domestic market. Meanwhile, the RatingDog General PMI from S&P Global, which registered 51.2 compared to August’s 50.5, captures more export-focused private manufacturers.

“The rebound reflects a seasonal uptick as the summer disruptions are behind us and the government becomes more supportive,” said Xu Tianchen, senior economist at the Economist Intelligence Unit, discussing the official survey results.

Xu noted that China’s economic performance follows a predictable pattern throughout the year. Strong beginnings due to early stimulus efforts, a summer slowdown, then recovery in the final quarter as officials increase support to hit annual targets.

Financial markets showed little reaction to Tuesday’s data, with investors focused instead on upcoming stimulus announcements and an October gathering of the ruling Communist Party that will outline plans for the next five years.

Authorities introduced consumer lending assistance programs in mid-August after separate statistics on factory production and store sales showed the weakest expansion in a year, as reported in a previous Cryptoplitan report.

Pan Gongsheng, who heads the People’s Bank of China, indicated last week that various monetary tools remain on the table to bolster the economy. However, he stopped short of reducing interest rates, despite speculation the central bank might follow the U.S. Federal Reserve’s lead.

Even with signs the $19 trillion economy is slowing, officials seem reluctant to launch major support packages, given steady foreign sales and rising stock prices, according to market observers.

The services and construction index dropped to 50.0 from 50.3 the previous month, reaching its lowest point since November, the statistics bureau reported. The combined index covering all sectors came in at 50.6 in September versus 50.5 in August.

Export orders remain weak

Foreign orders have now contracted for seventeen straight months, while hiring and producer prices remained depressed.

The combination of robust export figures alongside weak new orders indicates growth is clustered among a handful of companies, making the index less reliable for gauging overall export health, Xu explained.

Shipments to India reached record levels in August according to customs figures, while deliveries to Africa and Southeast Asia are heading toward annual highs.

Yet no market matches American consumption, where Chinese manufacturers sell over $400 billion in products each year, representing roughly 14% of total exports.

Chinese leader Xi Jinping and Trump spoke by phone on September 19 for the first time in three months. Though the conversation appeared to reduce tensions, it’s uncertain whether they reached expected agreement on TikTok, which analysts view as crucial to broader trade arrangements.

Technical disagreements seemed to slow negotiations, as trade representatives from both countries met again last Thursday to review issues from earlier discussions before this month’s Madrid summit, where a preliminary TikTok framework was established.

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