China’s economy dealt surprise setbacks in risk to growth pillar

CHINA’S economy got off to a poor start in the fourth quarter with an unexpectedly weak showing by its exporters, a sector that has become increasingly important to sustaining growth for the world’s second-biggest economy. 

Two days after the official manufacturing purchasing managers’ index (PMI) showed new export orders slumped sharply to the lowest since May, a private survey added to evidence of the growing strain on the bellwether industry. 

While overall the RatingDog China manufacturing PMI slid slightly to 52 in October, remaining above the 50 threshold separating expansion from decline, growth in new export orders slipped to a three-month low. 

In a statement on Monday (Nov 2), Yao Yu, founder of RatingDog, said that anecdotal evidence suggested greater volumes of new work from customers in Asia, Europe and Africa.

At the same time, the pace of expansion in new export orders “was modest, with growth slowing among consumer and intermediate goods makers while accelerating for investment goods firms”, he added.

Weaker overseas orders  – if sustained over time – would call into question the outlook for the country’s export-led expansion, after a rebound in the third quarter helped the economy reach the lower end of Beijing’s annual target of 4.5 to 5 per cent.

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Net exports contributed almost 40 per cent to the overall gain in gross domestic product – the most for any quarter since the start of 2025.

“The broad-based PMI deterioration” likely means a batch of official figures due in two weeks will show more weakness in economic activity for last month, according to Australia & New Zealand Banking Group (ANZ).

“The disappointing October PMIs suggest growth momentum remains fragile,” ANZ economists said in a report. “With the fourth-quarter growth outlook remaining uncertain, further policy support will likely be needed to secure full-year growth within the official 4.5 to 5 per cent target range.”

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Shipments abroad have been offsetting the squeeze from subdued domestic demand, as the property sector and the jobs market stay soft. 

The biggest drag on the Ratingdog gauge was a decline in the employment sub-index to 50.2 from 50.5, Goldman Sachs economists wrote in a note.

Employment accounts for 20 per cent in the calculation of the headline PMI number, according to the statement released jointly by RatingDog and S&P Global.

Though output expanded at the fastest since April, according to the private survey, business confidence eased from September, while average export charges declined for the first time in nearly a year.

Still, the snapshot of manufacturing provided by RatingDog was relatively upbeat when compared with the official figures released on Oct 31, which showed factory activity and construction slipped back into contraction territory. 

The private poll results – whose sample captures smaller and more export-oriented firms – have tended to be stronger than those from the government survey over the previous year as overseas demand boomed.

Both the official and the RatingDog polls showed higher input price sub-indicator than the output charge sub-index, “pointing to continued pressure on profit margins”, according to the Goldman economists.

Chinese authorities have stepped up measured policies in recent weeks to bolster growth, including mortgage discounts for targeted home buyers and more local bond quota to spur investment. Still, the package is only meant to ensure China meets the government’s growth goal and does not signal a significant easing cycle.

Citigroup economists said that they expect “more expansionary macro policy” in 2027, including 20 basis points of interest rate cuts and a two trillion yuan (US$301 billion) expansion in 2027’s general government deficit. 

“October’s PMIs reinforce our concerns about 2027 and beyond,” they added in a report. But “as growth remains on track to meet (2026’s) target, policymakers will likely focus on implementation while holding back major new stimulus”. BLOOMBERG