China factory activity shrinks again as firms watch for stimulus, US trade deal

Core Insights - China's manufacturing activity contracted for the sixth consecutive month in September, indicating a need for further stimulus to enhance domestic demand and clarity on U.S. trade relations [1][2] - The official purchasing managers' index (PMI) increased to 49.8 in September from 49.4 in August, remaining below the growth threshold of 50 but surpassing the median forecast of 49.6 [1][2] Manufacturing Activity - The prolonged slump in manufacturing highlights the dual pressures on China's economy: weak domestic demand recovery post-pandemic and the impact of U.S. tariffs on Chinese factories and foreign firms [2] - A private-sector survey indicated the fastest expansion since March, driven by rising new orders and increased production, including a rise in new export orders [2][3] Survey Differences - The official PMI focuses on large- and medium-sized firms targeting domestic sales, while the private-sector PMI includes a higher proportion of export-oriented companies [3] Economic Momentum - Economic momentum in China is characterized by fluctuations, with a strong first quarter due to early stimulus, a slower midyear, and an anticipated fourth-quarter rebound as government support measures are expected to ramp up [4] Market Reactions - Markets remained stable following the data release, with attention on policymakers' near-term stimulus plans and an upcoming Communist Party meeting to outline China's social and economic development for the next five years [5] Policy Measures - Policymakers introduced consumer loan subsidies in mid-August, which were validated by separate factory output and retail sales data showing the weakest growth in 12 months [6] - The governor of the People's Bank of China indicated that various monetary policy tools are available to support the economy, but did not follow the U.S. Federal Reserve in cutting rates [7]