China manufacturers hit 52.0 PMI, beating forecasts, with output growth at six-month peak

The weekend's official survey showed a weaker picture, so Monday's private gauge brought some respite to markets watching China-sensitive assets like the yuan, the Australian dollar and industrial metals. Looking past the headline figure, the pricing components dampened the relief. Chinese factories are cutting both output and export charges as competition intensifies, sustaining disinflationary pressure that may work its way into global trade. The divergence between the export-oriented private index and the broader official one further complicates Beijing's stimulus planning, signalling residual vigour in investment goods and exports against a backdrop of softening domestic activity. While the sector expands, confidence has fallen to its lowest in nine months, suggesting the run may be vulnerable to increasingly squeezed margins.

For October, China’s export-focused manufacturers appear to have fared better than the broader official numbers indicated, churning out more goods and selling more, but they did so by lowering prices amid fiercer competition for market share.

Summary:

• S&P Global's RatingDog General Manufacturing PMI for China registered 52.0 in October, slightly down from 52.1 in September, but clearing the 51.6 consensus forecast.
• The reading marked the 11th consecutive month in expansion territory, making it the longest improving streak since mid-2021.
• Production expanded at its quickest rate since April, paced by investment goods. New orders rose solidly for the 17th month running, but the pace of export order growth eased to a three-month low.
• Firms lowered output prices for the second time in three months and export charges declined for the first time in almost a year, as firms pointed to intense competition.
• The rise in input costs moderated, while purchasing activity picked up at its strongest rate since February and supplier lead times shrank.
• Business sentiment dropped to its weakest in nine months as concerns about input expenses and market competition weighed on firms.

China's private sector manufacturing index stayed well into expansion territory in October, presenting a more upbeat snapshot of factory activity than the official release over the weekend, even if price cuts were necessary to sustain the order flow.

The reading from the RatingDog survey, produced by S&P Global, came in at 52.0 for October, hardly moved from September's 52.1 and beating the 51.6 median estimate from a Reuters poll. This stretched the string of readings above the 50 threshold to 11 months, the longest sustained expansion streak since mid-2021. The results were published at 0145 GMT on Monday, or 2045 US Eastern time on Sunday.

It stands in clear contrast to the official manufacturing PMI from the National Bureau of Statistics, released on Saturday and falling into contraction territory at 49.3. The RatingDog index draws on a panel of about 650 manufacturers, with a tilt toward exporters, whereas the official survey covers more than 3,000 companies.

Production rose at the swiftest pace in six months, with expansion touching consumer, intermediate and investment goods categories, the last of which recorded the fastest growth. Aggregate new orders extended their run of monthly gains to 17, supported by product introductions, upgraded manufacturing capacities and companies' own sales drives. Export orders grew for a fourth month, with companies pointing to more business from customers in Asia, Europe and Africa, though the rate of expansion slipped to a three-month low.

Weakness was concentrated in the price data. For a second time in three months, manufacturers lowered what they charged for their goods, and export prices recorded their first annual decline in almost a year, with stiff competition the cited reason. Input expenses continued to climb, with metals and fuel driving increases, though the growth in costs moderated from the month before and stayed under the year-to-date average.

Companies boosted their purchasing activity at the sharpest rate observed since February and accumulated input inventories at the strongest pace in five months. Supply chains showed improvement: delivery times narrowed for the first time in eight months. Employment growth was muted, leaving work backlogs to accumulate steadily.

Business optimism dropped to its weakest point in nine months despite the solid activity, as some companies voiced concern over elevated input costs and intensifying rivalry. RatingDog flagged cost pressures, pricing competition and low confidence as areas to monitor, but predicted the manufacturing PMI would stay in expansionary territory for the near future.