China's factory activity returns to contraction in October

China's factory activity slipped back into contraction in October, according to official data released on Saturday. The manufacturing purchasing managers index (PMI) came in at 49.3, below the 50 mark indicating expansion. This was partly due to a week-long national holiday at the start of the month and a complex, volatile international environment, as per NBS statistician Huo Lihui.

The figure fell short of the 49.9 forecast by a Bloomberg survey of economists, and was lower than the 50.1 and 49.8 recorded in September and August. However, it was higher than the 49.2 recorded in July. The rise in international crude oil prices, which in turn increased the costs of coal, rubber, and plastic products, also contributed to the decline.

Despite positive momentum in the high-tech sector driven by the artificial intelligence boom, the PMI for the consumer goods industry fell 1.9 percentage points from the previous month, indicating weakening market activity. Beijing is aiming for annual economic growth of 4.5 to 5.0 percent this year, the lowest target in decades, as sluggish domestic demand challenges its export strength.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that strong exports alone are not sufficient to bolster economic momentum. If external demand weakens in 2027, China will likely require significant policy support to stimulate domestic demand. The non-manufacturing PMI, which gauges activity in services, construction, and other sectors, also dropped to 49.7 in October, below the Bloomberg forecast of 50.0 and the 50.2 recorded in September.

The decline was attributed to factors such as a decline in business prosperity in certain service sectors, particularly the financial sector, and a slowdown in construction activity.