China: Factory Activity Expands for First Time in Six Months

Facts

• On Saturday, China's National Bureau of Statistics revealed that factory activity had expanded for the first time in six months in the PRC.¹
• The bureau claimed that the manufacturing Purchasing Managers’ Index (PMI) rose from 49.7 in August to 50.2 in September.  Non-manufacturing PMI also reportedly rose from 51.0 to 51.7.²
• SpaceKnow, a US firm that analyses satellite images to draw conclusions, has said that activity focused on shopping malls and a pickup in cement manufacturing indicate an improvement in China's economy.³
• Preliminary signs of improvement in the Chinese economy emerged in August when factory output and retail sales grew. In tandem, exports and imports declined at a slower rate during the same period, while industrial profits rose 17.2%, compared to July's 6.7% slide.⁴
• In recent months, the government has taken some measures to improve the economy's health. These include lowering interest rates, lifting curbs on buying cars and homes, and letting local authorities increase borrowing for infrastructure investment.⁵
• The stabilization in China's economy has come ahead of the 'Golden Week' that began last Friday. Over 21M people are expected to fly, including on 14K  domestic flights, during the holiday; China's national railway plans to run 12K trains each day during the holiday, 20% more than on an average day.⁶

Sources: ¹Wall Street Journal, ²South china morning post, ³Bloomberg, ⁴CNBC, ⁵CNN and ⁶BBC News.

Narratives

• Narrative A, as provided by Wall street journal. Signals indicate a tentative stabilization in China's economy following months of sputtering. A spurt in retail sales, a marginal decline in urban unemployment, and increased investment in manufacturing — all hint at a cautious cyclical recovery. Policy support from the PRC at this crucial juncture could now go a long way in strengthening this revival.
• Narrative B, as provided by CNBC. There is reason for caution here — managers of China's economy cannot rest until the property market is stabilized. August saw the steepest fall in new home prices in 10 months even as investment declined for an 18th straight month. There are major irregularities in this sector which must also be taken into account.

Predictions