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posted on 12 November 2015

China Economy Remains Stable Although Manufacturing PMI Is Below Median for 3 Consecutive Months

Written by , GEI Associate

China's official manufacturing PMI index was 49.8 in October. This is the third month in a row that the index is lower than 50, which is the boundary indicating an expansion in manufacturing. In other words, Chinese manufacturing industry shows a slight contraction since August.

However, compared with the index for last month, the number is unchanged and a little higher than that in August (49.7). Even though manufacturing industries are encountering a recession due to economic structural reform, the Chinese economy still maintains stable situation as its policymakers try to rebalance the economy to one driven by consumption rather than exports.

Based on views of most Chinese experts, although Chinese manufacturing PMI is below the expansion line of 50, manufacturing industries are still a huge sector - and the sector is not in free fall.

With the continuation of structural adjustment, industries producing consumer goods and, high technology are continuing expansion trends, while, in order to resolve excess capacity, some traditional manufacturing industries are further reducing production.

The second Manufacturing PMI (from Caixin, formerly HSBC) has shown contraction for 10 of the last 12 months, but showed the strongest positive move since February in October.

In the meanwhile, Chinese non-manufacturing official PMI declines slightly from 53.4 to 53.1 in October. The index is below market forecasts, while it still shows an overall smooth expansion in Chinese non-manufacturing market activities.

Jin Cai, vice chairman of China Federation of Logistics & Purchasing, said the market activities growth trend is steady in October. Particularly, the construction industry rebounded significantly. Some festival consumption related industries performed well (the first week of October is China national week), thus supporting the continuous rise of market demand.

Through the drive of demand, Chinese non-manufacturing pricing index also recovered in October, plus service and construction sales price index also rose, and the growth rate of non-manufacturing sales price index further increased compared with those in the last two months.

To sum up, although the reform slows down economic growth in doesn't push the rate below a level that can keep the Chinese economy maintaining stable growth as a whole. This should reduce the anxiety of uncertainty to the U.S. economy about the slowdown of the global economy, and further supports Federal Reserve in raising interest rates by the end of this year.

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