China’s Factory Activity Sparks Hope Slump Is Bottoming Out

China’s manufacturing contraction eased slightly in August and a gauge of new orders improved, providing some hope that the worst of the sector’s slump may be ending.

(Bloomberg) — China’s manufacturing contraction eased slightly in August and a gauge of new orders improved, providing some hope that the worst of the sector’s slump may be ending.

The official manufacturing purchasing managers’ index rose to 49.7, topping estimates and edging closer to the 50 level that would signal activity has stopped contracting. 

While market reaction to the figures was muted, they offered tentative evidence that targeted efforts to shore up the economy are having some effect. The nation’s manufacturers have been struggling for months because of a slump in global demand and subdued domestic spending. Policymakers have so far been reluctant to roll out massive stimulus, with some economists suggesting the official annual growth target of about 5% is at risk.

“Perhaps we have seen a bottom in sentiment among manufacturers after the recent policy support measures from authorities,” said Alex Loo, macro strategist at TD Securities, pointing to the improvement in new orders and a jump in production. 

A gauge of onshore stocks fell 0.5% as of 2:15 p.m., while Chinese shares in Hong Kong lost 0.2%, reversing a morning gain of 1.2%. China’s 10-year government bond yield was little changed at 2.58%.

The manufacturing PMI “looks as if activity will be flatlining in the near term,” said Robert Carnell, chief economist for Asia Pacific at ING Groep NV. “It could be worse. Flatlining is not plunging.”

The improvement in the factory figures are also positive for global commodity markets and capital goods producers, according to Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings, as investment and industry are more import-intensive than consumption. 

Services Activity Eases

Outside of manufacturing, there were worrying signs in the PMI figures that suggests the economy’s recovery continues to be dragged down by the property downturn and subdued consumer spending. The non-manufacturing PMI eased more than economists estimated, while a sub-index measuring services activity dropped to 50.5 in August, the weakest reading since December. 

“Demand remained insufficient,” said Bruce Pang, chief economist and head of research for greater China at Jones Lang LaSalle Inc. “With the boom of ‘consumption revenge’ ebbing, it’s becoming a concern whether service spending can continue expanding in a sustainable manner. Additional stimulus, its implementation and the impact it will cause will be key to watch next.”

Authorities have rolled out measures to bolster specific sectors in recent weeks, including plans to increase consumer goods manufacturing and car sales such as lowering costs for electric vehicle charging and extending tax breaks. Production and new orders for automakers both showed “robust activity on both the supply and demand ends,” NBS analyst Zhao Qinghe said in a press release accompanying the PMI figures.

What Bloomberg Economics Says … 

“Weak demand continues to knee-cap a recovery. Policy support is having some effect. But without stronger support — particularly a coordinated fix for the property sector — the risk is growth remains under pressure and financial stress spreads.”

— Chang Shu and Eric Zhu, economists

Read the full report here.

After a slow start, China’s outbound tourism has been recovering steadily, overall. But the recovery differs significantly across destinations, with traffic to many long-haul destinations still down heavily compared to the pre-Covid period, especially where political friction also plays a role. 

A further weakening of the services spending rebound could lead to disappointment in economies, especially Asian ones, that are banking on a recovery of Chinese tourist arrivals, according to S&P’s Kuijs. 


Authorities have taken a measured response to policy stimulus to avoid driving up debt and exacerbating financial risks. A gloomy income and job outlook has also kept businesses and households reluctant to borrow, making it hard for easing measures to have a material impact on economic activity.

The People’s Bank of China has cut policy interest rates twice this year, though, while the nation’s biggest lenders are expected to trim rates on existing mortgages in a concrete step to support growth. Authorities have also pledged in recent days to speed up fiscal spending. And the central bank on Wednesday met with companies and banks to push for better funding access for private firms.

China’s local governments have also accelerated the pace of borrowing for infrastructure investment, a move that could help lift economic growth. Thursday’s data showed a pickup in construction activity — an improvement reflecting a “a strong will” by authorities to boost infrastructure to shore up growth, Pang said. 

Other Key Details From the Manufacturing Survey:

  • A sub-index measuring new orders expanded for the first time since March, reaching 50.2
  • Employment weakened to 48 in August from the prior month
  • New export orders improved slightly to 46.7 but remained in contraction for a fifth straight month
  • Suppliers’ delivery times increased to 51.6 from 50.5

–With assistance from Zhu Lin, Wenjin Lv, Iris Ouyang and Nasreen Seria.

(Updates to include additional details.)

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