China's economy stabilises, factory activity returns to expansion

China's factory activity expanded in Sept for 1st time in 6 months, per official survey. PMI rose to 50.2, beating forecast of 50.0. Signs of stabilisation in economy, incl. factory output & retail sales growth, exports & imports narrowing & deflation easing. ADB trimmed 2023 growth forecast to 4.9%, more policy support needed to hit govt's 5% growth target.

China's factory activity expanded for the first time in six months in September, an official survey showed on Saturday, adding to a run of indicators suggesting the world's second-largest economy has begun to bottom out.

The purchasing managers' index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, edging above the 50-point level demarcating contraction in activity from expansion. The reading beat a forecast of 50.0.

The PMI, the first official statistics for September, adds to signs of stabilisation in the economy, which had sagged after an initial burst of momentum early in the year when China's ultra-restrictive COVID-19 policies were lifted.

Preliminary signs of improvement had emerged in August, with factory output and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July's 6.7% decline.

"The manufacturing PMI, plus the good industrial profit figures, suggest that the economy is gradually bottoming out," said Zhou Hao, chief economist at Guotai Junan International.

China's non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, also rose, coming in at 51.7 versus August's 51.0.

The composite PMI, including manufacturing and non-manufacturing activity, climbed to 52.0 in September from 51.3.