China's Factory Activity Approaches Stability in October

China's manufacturing sector is on the verge of stabilizing after a challenging period. The official Purchasing Managers' Index (PMI) for October narrowly missed the growth threshold. According to a survey of 30 economists, the PMI is expected to be 49.9, a slight increase from 49.8 in September. This figure is just below the 50-point mark that separates contraction from expansion.

The manufacturing sector has faced challenges such as falling producer prices and decreasing orders, creating a depressed atmosphere for months. Despite these difficulties, the sector's performance shows signs of improvement, aligning with expectations that recent stimulus measures will strengthen the economy.

While China's exports showed a decline last month, they remain a relatively bright spot, and the country's economic growth in the third quarter was the slowest since the beginning of 2023. Nevertheless, Sheng Laiyun, deputy head of China's statistics bureau, showed an optimistic stance during a press conference following the release of third-quarter data, indicating that the economy is expected to maintain the trend of stability and recovery that began in September.

Economists noted that sentiment-based surveys like the PMI often lag behind actual economic indicators. Some analysts, including those from the Economist Intelligence Unit, Standard Chartered, and Citigroup, forecast that the PMI may have returned to the expansion zone this month, with predictions of 50.4, 50.2, and 50.1, respectively. Meanwhile, Goldman Sachs and Nomura predict that the PMI will remain unchanged at 49.8, while JPMorgan anticipates a neutral reading at the 50 mark.

The challenges facing the manufacturing sector were highlighted by the sharpest monthly industrial profit decline of the year in September. The National Bureau of Statistics attributed this decline to factors such as insufficient demand. Other indicators pointed to deflationary pressures and weak credit demand, emphasizing the need for additional stimulus to support the economic recovery.

While China’s finance minister promised further fiscal stimulus, the details regarding the package, including its size, were not disclosed, leaving investors in uncertainty. Reports based on informed sources from Caixin Global suggested that China could raise 6 trillion yuan (about $842.7 billion) through special treasury bonds over three years.

The official manufacturing PMI will be released on Thursday, while analysts predict that the private sector's Caixin PMI will be announced on November 1, expected to be 49.7.