BEIJING (Reuters) -China’s factory activity likely shrank for a seventh month in October, underscoring the need for further stimulus to bolster domestic demand, as producers’ efforts to offload goods abroad merely exported the price wars weighing on them at home.
A Reuters poll of 28 economists forecast the official purchasing managers’ index (PMI) would slip to 49.6 from September’s 49.8, remaining below the 50-point threshold that separates growth from contraction. The data is due on Friday.
The prolonged slump comes as manufacturers struggle to mount a sustained recovery in the years since the COVID pandemic and a costly trade war with U.S. President Donald Trump forces factory owners to give up on the world’s top consumer market.
Producers are also having difficulty making ends meet in new markets, with exporters increasingly selling at a loss in Europe, Latin America, the Middle East and Africa.
The PMI, a sentiment-based survey, has at times presented a gloomier picture of the economy than the hard data, with September’s industrial output and profit figures showing growth for a third and second consecutive month, respectively. Analysts warn those gains were likely distorted by a push from China’s large, state-owned firms.
China’s economic growth slowed to 4.8% in the third quarter, its weakest pace in a year. While that keeps the world’s second-largest economy on track to meet its target of roughly 5% this year, it raises questions about Beijing’s reliance on external demand amid mounting trade tensions.
The ruling Communist Party pledged to boost domestic consumption following a four-day closed-door meeting last week that outlined economic and policy objectives for the next five years, while also emphasizing efforts to strengthen its vast industrial system.
However, analysts question whether Beijing was proposing anything new or reaching for its usual playbook of channeling resources to large firms while bypassing private producers and households.
“I see an erosion of the private sector and small businesses, squeezing of suppliers and success with automation – replacing humans with machines – rather than success in turning China’s manufacturing base around,” said Dan Wang, China director at Eurasia Group, following industrial profits data released on Monday.
“There is clearly inactivity in the private sector aside from emerging industries, housing is still down, delayed payments are still a problem, and deflation still risks becoming permanent,” she added.
Some analysts believe Beijing doesn’t need more stimulus this year, while others see speeding up infrastructure investment as a way to ensure the economy remains on target in the fourth quarter.
That does little to ease longer-term concerns over Beijing’s ability to rebalance an economy in which household consumption trails global averages by about 20 percentage points of GDP.
Analysts polled by Reuters forecast the private-sector RatingDog PMI to come in at 50.9, down from 51.2 a month prior.
(Reporting by Joe Cash; Polling by Devayani Sathyan in Bengaluru and Jing Wang in Shanghai; Editing by Sam Holmes)
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