China PMI slips back into contraction

China’s factory activity moved back into contraction in October, with the official manufacturing purchasing managers’ index falling to 49.3 after registering 50.1 in September. The latest reading slipped below the 50-point level that separates expansion from contraction and missed economists’ expectations of 49.9. The October outcome marked the third time in four months that manufacturing has been in contraction, underscoring renewed pressure on the industrial sector at the start of the fourth quarter.

The pullback followed a modest rebound in the previous month and came amid weakened demand for both export and domestic goods. New orders and new export orders stayed in contraction territory, indicating that order books remain under strain despite earlier signs of stabilisation. Production and purchasing activity also slipped into contraction, pointing to a broad-based cooling across factory operations.

Alongside the headline manufacturing figure, several key subindexes deteriorated. The production subindex declined to 49.8 in October from 51.7 in September, moving below the expansion threshold and signalling reduced output. New export orders softened further, contributing to the overall downturn in factory activity as external demand waned.

Conditions outside manufacturing also weakened. The non-manufacturing PMI, which covers services and construction, fell to 49.7 in October from 50.2 in September. This indicated that activity in services and construction sectors also slipped into contraction, suggesting a broader loss of momentum across the economy at the beginning of the fourth quarter.

Despite the overall contraction, performance varied across industries. Railway, shipbuilding, aerospace equipment, and computer, communications and electronics manufacturing recorded production and new orders subindexes at or above 53.0. These readings signalled ongoing expansion in parts of the industrial complex even as the broader manufacturing sector weakened.

Within technology-linked segments, some firms reported strong earnings growth, while others showed notable declines. AI-related companies recorded robust performance, with Zhongji Innolight’s third-quarter net profit nearly tripling. In contrast, furniture maker Oppein Home saw its net profit fall by 80%, highlighting uneven demand patterns across consumer and industrial markets.

The October PMI results came after a period of modest recovery in the preceding three months and as authorities seek to achieve an annual growth target of 4.5% to 5%. Existing support measures include expanded credit for small businesses and consumers, mortgage subsidies for eligible homebuyers, and additional local government bond issuance quotas. Construction has been accelerated on major infrastructure projects, including the Six Networks programme that underpins broader infrastructure and artificial intelligence ambitions.

The latest readings indicate that these initiatives have not yet produced a sustained improvement across manufacturing and services. Third-quarter growth rebounded to 4.5%.