Tale of two China PMIs: Manufacturing still contracting

The final Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) for September was slightly down from August but was a touch higher than a preliminary reading, data released on Thursday showed.

“Both external and domestic demand remain weak and the manufacturing sector still faces big downward pressure”, Zhao Qinghe, an economist with the nation’s statistics agency, said in a statement.

A reading over 50 points suggests an expansion in activity while one below that level points to an contraction on a monthly basis.

A key factor weighing on the headline index was a sharper contraction of manufacturing output in September.

And according to sub-indexes of the services PMI, services providers in September saw the rate of new business order growth decline to the slowest pace since July 2014.

A plunge in China’s stock market and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing’s ability to manage its economy.

The non-manufacturing PMI reading for September was unchanged at 53.4, reflecting the relatively stronger performance of services industries throughout the economic slowdown.

Companies in the services sector, however, continued to hire. The current downturn has not produced evidence of mass layoffs so far, though tales abound of “zombie” factories keeping workers on payrolls at subsistence wages.

The government is due to release third-quarter GDP data on October 19 and many economists expect growth to dip below 7 percent, which would be the weakest since the global financial crisis.

Activity in China’s vast manufacturing sector contracted for a second straight month in September, an official survey showed on Thursday, adding to signs of weakness in the world’s second-largest economy which are shaking global markets.

Unlike the government’s gauge that concentrates on large firms, Caixin’s survey focuses on smaller and medium-sized companies.

The Aussie’s gain was modest, however, as the PMI suggested economic conditions were still deteriorating despite a raft of government stimulus measures.