MORGANABLE INDUSTRY WATCH
China’s factory activity returned to growth in September, ending a two-month period of contraction and offering a fresh sign of improvement in the world’s second-largest economy.
Akure —
China’s factory activity returned to growth in September, ending a two-month period of contraction and offering a fresh sign of improvement in the world’s second-largest economy.
A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction.
The September figure also matched the median forecast in a Reuters poll of economists. More importantly, it marked the first time the official manufacturing PMI had moved above the 50-point threshold since June.
The improvement came as factories faced fewer weather-related disruptions. Earlier in the summer, heavy rains and typhoons disrupted production in several parts of China.
As those disruptions eased, factories were able to resume operations more normally.
At the same time, demand linked to the global artificial intelligence boom provided additional support for China’s industrial sector.
The rapid expansion of AI infrastructure has increased demand for chips, electronics and other technology-related products. Consequently, Chinese manufacturers have benefited from stronger orders in some high-growth industries.
PRODUCTION SHOWS STRONGER GROWTH
Production was one of the clearest areas of improvement in September. The official production sub-index rose to 51.7 from 50.4 in August.
The increase suggests that manufacturers expanded output at a faster pace as operating conditions improved.
New orders also remained in expansion territory. The new orders index stood at 50.5, although it slipped slightly from 50.6 in August.
Therefore, the latest figures show that production remained stronger than overall demand.
New export orders, meanwhile, stood at 50.0. That figure suggests that overseas demand was broadly stable during the month.
Export activity remains important for China because manufacturers have continued to rely on foreign markets while domestic demand remains relatively weak.
A separate private-sector survey provided an even stronger reading. The RatingDog China Manufacturing PMI, compiled by S&P Global, climbed to 52.1 in September from 51.5 in August. It reached its highest level in five months.
The private survey also pointed to stronger output and new orders. In particular, new export orders recorded their strongest growth in seven months.
The result highlights the role of external demand in supporting China’s manufacturing sector.
RECOVERY REMAINS UNEVEN
Despite the improvement, China’s manufacturing recovery is not broad-based across every part of the economy.
Official data showed that large manufacturers remained in expansion, with their PMI at 50.6. However, medium-sized companies recorded 49.7, while small businesses stood at 48.9.
Both smaller categories improved from August, but they remained below the 50-point mark.
This means many smaller manufacturers are still experiencing contraction.
Employment also remains a concern. The manufacturing employment index stayed below the expansion threshold, suggesting that the improvement in factory activity has not yet translated into a broad recovery in hiring.
Profit margins are another pressure point. Rising input costs are affecting manufacturers, while selling prices remain under pressure in some areas.
As a result, stronger production does not necessarily mean that companies are seeing equally strong profits.
SERVICES AND CONSTRUCTION ALSO IMPROVE
The improvement was not limited to manufacturing. China’s official non-manufacturing business activity index rose to 50.2 in September from 49.0 in August.
The services sector returned to expansion, with its activity index reaching 50.2. The National Bureau of Statistics said activity in areas such as telecommunications, financial services and insurance remained relatively strong.
Construction also improved significantly. Its business activity index rose to 50.3, up 3.4 points from August. The reading represented the sector’s highest level of the year.
Weather conditions played a role in the construction recovery as disruptions eased. Construction companies also reported improved expectations for future activity.
Meanwhile, China’s composite PMI rose to 50.7 from 49.5 in August. The index combines manufacturing and non-manufacturing activity.
Its move above 50 indicates that overall business activity expanded during September.
DOMESTIC DEMAND REMAINS A CHALLENGE
Still, China faces significant challenges despite the latest improvement.
Domestic consumption remains relatively weak, while the prolonged property-sector downturn continues to affect confidence among households and businesses.
Weak demand can make it difficult for manufacturers to maintain strong sales even when production increases.
The uneven performance between production and new orders illustrates this challenge.
While the production index climbed strongly, the new orders index remained only slightly above the expansion threshold.
For policymakers, the latest figures therefore provide encouragement but do not remove the need for additional support.
Chinese authorities have already introduced measures aimed at supporting economic activity.
These include steps to encourage lending and stimulate demand in areas such as infrastructure, technology and housing.
The government is also seeking to maintain economic momentum as it works toward its growth target for 2026.
Further policy support could become important if domestic demand remains subdued.
AI PROVIDES AN IMPORTANT BOOST
The global AI boom has become an increasingly important source of support for China’s industrial sector.
Demand for technology equipment, electronics and related components has helped some Chinese manufacturers maintain strong production levels.
This trend could continue if global companies keep increasing investment in AI infrastructure.
However, reliance on external demand also creates risks. Trade tensions, geopolitical uncertainty and increased scrutiny of Chinese exports could affect manufacturers that depend heavily on overseas markets.
Therefore, the latest PMI figures offer a mixed picture. On one hand, manufacturing has returned to expansion.
Production is stronger, private-sector activity has improved and several service industries are gaining momentum.
On the other hand, smaller manufacturers remain under pressure, employment has yet to recover fully and domestic demand continues to pose a challenge.
Overall, September’s data suggest that China’s economy entered the final quarter of the year with improved industrial momentum.
Yet the strength and durability of the recovery will depend on whether stronger factory output can translate into stronger domestic consumption, investment and employment.
The stronger private-sector reading of 52.1 adds to the positive signal. However, policymakers will still need to address the weaknesses that remain beneath the headline improvement.
