Key facts
- China's factory activity likely swung back to growth in September.
- The official manufacturing PMI is expected to rise to 50.1 in September from 49.8 in August.
- The private RatingDog manufacturing PMI is expected to edge up to 51.6 from 51.5 in August.
- The Chinese government will launch pragmatic and effective incremental policy measures to address economic strains.
- China and the US agreed to lower tariffs on $60 billion of each other's goods.
China's factory activity is expected to have returned to growth in September, ending a two-month contraction, according to a Reuters poll of 29 economists. The official manufacturing purchasing managers' index (PMI) is forecast to rise to 50.1, crossing the 50-point threshold that separates expansion from contraction. The private RatingDog manufacturing PMI, compiled by S&P Global, is also expected to show an improvement, edging up to 51.6.
This anticipated rebound is attributed partly to a recovery from disruptions caused by heavy rain and typhoons in August. Advanced manufacturing and exports have been relatively strong performers within the Chinese economy this year. Officials maintain that the economy is on track to meet its annual growth target of 4.5% to 5%.
However, recent data on retail sales and investment have indicated a slowdown in economic momentum. Consumer spending remains cautious due to uncertain income prospects and concerns about the impact of artificial intelligence on employment. In response, the State Council, chaired by Premier Li Qiang, convened a meeting on Monday, signaling a greater urgency to support growth. The government plans to "launch a package of pragmatic and effective incremental policy measures" to address economic strains, including stabilizing the property market, promoting employment, and increasing income.
Economists at Goldman Sachs noted that these "incremental policy measures" suggest targeted easing through fiscal and credit channels rather than broad stimulus. The investment bank anticipates the Ministry of Finance may approve over 500 billion yuan ($74.57 billion) in additional local government bond issuance quotas in the coming weeks. Despite these measures, Goldman Sachs forecasts no policy rate cuts for the remainder of 2026, citing narrow bank net interest margins.
Strong exports continue to provide a buffer for China's economy, even as policymakers grapple with tepid domestic demand and a property downturn. This week, China and the United States also agreed to lower tariffs on $60 billion of each other's goods, though analysts believe this limited agreement will not fundamentally alter their complex trade relationship.