China’s Manufacturing Sector Shows Improvement in October

According to the purchasing managers’ index published by HSBC – the British multinational financial services and banking company located in London – conditions in China’s manufacturing sector showed a slight improvement in October, supporting the view that the country’s overall economy has, at the very least, stabilized. October’s reading for the purchasing managers’ index was 49.1 points on a 100-point scale, compared with 47.9 points for September and is the strongest reading in three months. This improvement is seen as evidence of a gradual improvement in overseas demand, together with a positive response to the stimulus measures Beijing has been introducing over the past 12 months or so. However, the index remains below the 50-point level which separates contraction and expansion, revealing that considerable challenges remain.

The reading was also in line with data released last week which indicated that retail sales and investment are improving, despite the fact that economic growth in the three months July, August and September fell to 7.4 percent. The results released by HSBC are a preliminary report with the final index due on 1 November. The reading is based on a survey of 420 companies, of which between 85 and 90 percent responded.

Chief China economist at HSBC, Qu Hongbin, noted that growth had most likely bottomed out and will experience a gradual recovery into the fourth quarter. Qu went on to say that in order to secure a firmer growth recovery there would need to be a continuation of policy easing in the coming months. Among the challenges ahead are pressures in the job market, the ongoing financial turmoil in Europe and the trade disagreements between the United States and China.

Analysts have noted that the recovery of the Chinese economy is likely to be L-shaped, in that the decline may have stopped, but improvements in growth are likely to be very slow. This would be disappointing news for exporters to China that have been counting on the second largest economy in the world to play a major role in reviving global demand.

As China’s ruling Communist Party prepares to hand over power, an event that happens only once every ten years, it has set the economy’s official growth target for this year at 7.5 percent, which is far below the double-digit growth the country has experience in recent years.