China: Mixed readings from PMIs in September – UOB

UOB Group’s Economist Ho Woei Chen, CFA, reviews the latest PMI results in the Chinese economy.

Key Takeaways

“China’s official manufacturing PMI released by CFLP unexpectedly rebounded to expansion in Sep but the private sector Caixin manufacturing PMI which tracked smaller private companies fell deeper in contraction.”

“The CFLP non-manufacturing PMI remained in expansion but moderated by a much larger than expected 2.0 points to 50.6 in Sep (Bloomberg est: 52.4; Aug: 52.6). The strengthening in construction index to its highest since Aug 2021 (60.2 from 56.5 in Aug) likely due to the realisation of government’s infrastructure spending failed to offset a sharp decline in the services activity index (48.9 from 51.9 in Aug) which tumbled into contraction for the first time since May this year.”

“Outlook for non-manufacturing sector is likely to remain weak in Oct as well but we see potential for a slight recovery in Nov-Dec as travel restrictions are being lifted after the 20th Party Congress (16 Oct). Further upside can be expected if the borders restrictions are also eased while the rolling in of more infrastructure spendings that were announced earlier could also boost the construction sector.”

“Notwithstanding the improvement in the official manufacturing PMI in Sep, the manufacturing sector could be faced with greater downside risk in the coming months as the environment in the US, Eurozone and UK turns recessionary.”