China's Economic Hurdles: Factory Activity Shrinks and Services Sector Slows

China's factory activity shrank for the fifth month in September, and the services sector slowed sharply. Although the PMI rose to 49.8, it remains below the growth threshold. Beijing launched its most aggressive stimulus package since the COVID-19 pandemic to meet its 2024 growth targets.

China's factory activity shrank for the fifth consecutive month in September, with the services sector also seeing a significant slowdown. This indicates that Beijing might need even more robust stimulus measures to achieve its 2024 growth targets, which seem increasingly challenging with just three months left in the year.

According to the National Bureau of Statistics' purchasing managers' index (PMI), the index slightly improved to 49.8 in September from August's 49.1, staying below the 50-mark threshold separating growth from contraction. This reading is the highest in five months and slightly better than a Reuters poll forecast of 49.5. Despite this, China's factory and consumer activity present ongoing challenges for policymakers, leading to the rollout of the most aggressive stimulus package since the COVID-19 pandemic, a move that stimulated the stock market to post its best weekly performance in nearly 16 years.

However, questions remain about whether these policy announcements, including property market curbs in major cities, will be sufficient to spark a significant recovery. Economists emphasize that these policies may have limited macroeconomic impact, as noted by Zhiwei Zhang, chief economist at Pinpoint Asset Management, who underscored the importance of fiscal policies in addressing the broader economic issues. More measures, including directives for banks to lower mortgage rates and a new bond package, are expected to help address weak demand and an evolving global trade environment.