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China Factory Activity Slows in October

Oct. 31, 2017
Softer domestic demand was the "main culprit," according to one economist.

Chinese manufacturing expansion slowed in October after two consecutive months of acceleration, official data showed Tuesday, as weak demand weighed on the world's second-largest economy.

The manufacturing purchasing managers' index (PMI), a gauge of factory conditions, stood at 51.6 in October, the National Bureau of Statistics (NBS) said, compared to 52.4 in September, which marked a five-year high.

Anything above 50 is considered growth while a figure below that number points to contraction. Analysts surveyed by Bloomberg News had expected a reading of 52.

"Softer domestic demand was the main culprit" behind the slowdown, Julian Evans-Pritchard of Capital Economics said in a research note.

October's week-long National Day holiday slowed down production and new orders growth, and energy and pollution-intensive industries shifted peak load or reduced production due to tightened environmental controls in some regions, NBS analyst Zhao Qinghe said in a statement.

But "the manufacturing sector continues to maintain an expanding momentum," he added.

Manufacturing activity in heavy industries in northeastern China was curbed due to capacity reduction and a pollution crackdown.

China has implemented tight controls on heavy industry in hopes of improving the country's notoriously bad air quality, which typically worsens in the winter months.

"Softer investment spending in response to slower credit growth and the unwinding of pre-Party Congress fiscal support" also cooled down economic activity, according to Evans-Pritchard.

President Xi Jinping emphasized deleveraging and environmental protection during the recently concluded Communist Party congress, with Beijing looking to transition from a debt-fueled expansion model toward high-quality growth driven by consumption and innovation.

"The ongoing campaign to clean up financial leverage and the environment will have an impact on economic growth," Tommy Xie, an economist at OCBC Bank in Singapore, told Bloomberg.

October's data came after China registered slightly slower growth in the third quarter, with the economy expanding at 6.8 percent.

Analysts say a decision by the government to allow slower expansion would help lay the groundwork for tackling long-term economic issues such as soaring debt and property-led growth.

Copyright Agence France-Presse, 2017

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