China - September PMIs point to some improvement

China Macro – Following weak July/August data, September PMIs show some improvement

Just before the start of the Golden Week holiday (1-8 October), when large parts of the Chinese economy come to a halt, all PMIs for September were published. After hard data were generally disappointing in recent months (also see China – Another month of weak data), the September PMIs on balance came in a bit stronger than expected and showed some improvement balance, although some outcomes were still on the weak side. The divergence between the official PMIs and the alternative indicators (now sponsored by RatingDog instead of Caixin) widened, with the official PMIs staying at relatively weak levels from a Chinese perspective. Note that the larger NBS survey has a stronger coverage of larger, state-owned firms, while RatingDog’s survey is more focussed on smaller, private, export-oriented firms.

The two manufacturing surveys show quite some divergence

The official manufacturing PMI published by NBS came in slightly better than expected, rising to a six-month high of 49.8 (August: 49.4, consensus: 49.6), although still remaining below the neutral 50 mark separating expansion from contraction for the sixth consecutive month. RatingDog’s manufacturing PMI showed a more impressive improvement and outpaced expectations, rising by 0.7 points to a ten-month high of 51.2 (August: 50.5, consensus: 50.2), and is now more convincingly in expansion territory. Looking at the various components of the two manufacturing surveys, the divergence is driven by the demand side – with the components for domestic and export orders still below 50 in the NBS survey but well in expansion territory in RatingDog’s survey. It was the first time since the escalation of the trade war with the US in April that at least one of the export components of both surveys was back in expansion territory.

Official non-manufacturing PMI further down, both composite PMIs up

Meanwhile, the official non-manufacturing PMI dropped by 0.3 points to the neutral mark of 50 (August: 50.3, consensus: 50.2), the weakest reading since November 2024; the last time this index had fallen below the neutral mark was during the messy Zero-Covid exit in end 2022. The sub-index for the services sectors dropped to 50.1 (August: 50.5), while the sub-index for construction remained in contraction territory at 49.3 (August: 49.1). Also here, the divergence with RatingDog’s survey remains striking, with the alternative services PMI remaining well in expansion territory, at 52.9 (August: 53.0). The official composite PMI (a weighted average of the output components for manufacturing and non-manufacturing) picked up slightly to 50.6 (August: 50.5), while RatingDog’s equivalent rose by 0.6 points to a fifteen-month high of 52.5.

Annual GDP growth still expected to slow in 2H-25, targeted support expected but no ‘bazooka’

To sum up, the September PMIs suggest China closed the third quarter on a bit more positive note compared to July and August. Still, with a deepening property slump and the campaign against excessive competition hitting investment alongside ongoing sluggish consumption, we expect annual GDP growth to slow materially in the second half of this year. We still expect Beijing to add targeted fiscal support and piecemeal monetary easing to stabilise growth going forward, but no ‘bazooka’ (see for more background the China update in our September Global Monthly, Managing the growth slowdown amidst a ‘hot’ stock market. On 20-23 October, China’s Communist Party will review the Five-Year Plan for 2026-2030, which will potentially give some clues to what extent Beijing is prepared to step up support for domestic demand.