(Bloomberg) -- China’s economy showed signs of stabilizing after Beijing unleashed the boldest stimulus measures since the pandemic, although an upcoming US election injects uncertainty into the recovery.
Factory activity unexpectedly expanded in October after five months of contraction, the National Bureau of Statistics said Thursday. The official manufacturing purchasing managers’ index rose to 50.1, higher than a forecast of 49.9 by economists. The non-manufacturing PMI showed activity in construction and services expanded after staying little changed the previous month.
“It’s positive that the PMI beat and there were some signs of a turnaround, but at the end of the day we’re still in the shadow of the US elections which remain a key wild card for the China growth outlook,” said Eddie Cheung, senior emerging markets strategist at Credit Agricole CIB.
Chinese stocks swung between gains and losses on Thursday morning, with the benchmark CSI 300 Index rising as much as 0.9% after losing 0.8% earlier. The offshore yuan was little changed and China’s 10-year government bond yields kept steady at 2.16%.
The PMI surveys provided the first official economic indicators for the month after China made forceful cuts to interest rates and unveiled measures to bolster the housing market in late September. The uptick in activity defied the drag from fewer working days in October as a result of a weeklong public holiday.
The readings are “a good start” for the fourth quarter, said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “We expect the PMI to stay expansionary in the next two months.”
Economists now project that China can achieve its official growth target of around 5% for this year. Based on the latest Bloomberg survey, they estimate the economy will expand 4.8%.
The road ahead is less certain, especially with the US presidential election next week that could return Donald Trump to the White House in January. The former president has threatened to impose 60% tariffs on Chinese products, a move that would decimate China’s exports to its largest single-country trade partner and hurt a bright spot in the Chinese economy.
Chinese exports have powered the economy this year with shipments through September soaring to the second-highest value on record, although the pace of growth has slowed. Data released Thursday showed new export orders for manufacturing companies remained weak and continued to contract this month, even as overall new orders stabilized.
What Bloomberg Economics Says...
This is an encouraging PMI report. But the economy still needs more policy support to get growth up to the 5% target. We expect policymakers to continue to deliver the stimulus they’ve unveiled since late September, with a focus on ensuring the measures are implemented and get traction.
— Chang Shu and David Qu
Read the full note here.
A reelection of Trump would give Beijing more reason to beef up support for domestic demand for next year. Top lawmakers are expected to vote on a much-anticipated fiscal package next Friday, which could provide clues for stimulus next year.
Weijian Shan, executive chairman of PAG, one of Asia’s largest alternative asset managers, said a deeper trade war with the US may spur China to reorient its economy “away from investments and exports in the direction of private consumption,” in a podcast with Bloomberg Intelligence.
Services sector activity received a boost from holiday travel and consumption, with the sub-index returning to expansion after shrinking in September. Selling prices for both manufacturing and non-manufacturing improved, even though they were still in contraction.
“Looking forward we’ll need to see if the stimulus rollout can lead to a recovery of domestic demand to offset what looks to be a still weakening external demand picture,” said Lynn Song, chief Greater China economist at ING Bank.
The Chinese economy expanded at the slowest pace in six quarters in the three months ended in September. A housing market crash has brought consumer appetite along with it, and the economy faces long-term challenges including rising trade tensions, entrenched deflationary pressure and a shrinking population. A gauge of consumer confidence fell in September to the lowest since 2022.
President Xi Jinping on Tuesday urged officials to make efforts to achieve the annual growth target in at least his fourth such exhortation in two months, signaling Beijing’s intent to put a floor under the slowdown.
Following the policy package, economists have raised their projections for China’s on-year gross domestic product growth in the fourth quarter to 4.8% from 4.6% previously.
--With assistance from Wenjin Lv, Chongjing Li and Zhu Lin.
(Updates with more comments and details throughout)
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