China’s factory activity expanded in September for the first time in three months, with the official manufacturing PMI rising to 50.1 and non-manufacturing PMI to 50.2, signaling a cautious economic recovery. This rebound follows new, targeted stimulus measures from Beijing, though economists view these as a “mini stimulus” that may only achieve modest growth targets rather than a significant economic boost.
China's vital factory sector saw a significant rebound in September, expanding for the first time in three months as Beijing intensified its efforts to stimulate the economy. This renewed growth signals a potential turning point after a period of economic slowdown.
The official manufacturing purchasing managers' index (PMI) edged up to 50.1 in September from 49.8 in August, according to data released by the National Bureau of Statistics (NBS) on Wednesday. This figure, which aligns with analysts' expectations, crosses the 50-point threshold that separates expansion from contraction.
NBS chief statistician Huo Lihui noted that this modest expansion was primarily fueled by accelerated activity in equipment and high-tech-related manufacturing sectors, alongside a boost in consumer industries.
Mirroring the manufacturing sector's recovery, the non-manufacturing PMI also returned to expansionary territory, climbing to 50.2. This rise was driven by increased business activity in the services sector and reached its highest level this year in the crucial construction sector. Chinese manufacturers have particularly benefited from the global AI hardware boom, helping to offset concerns around weak domestic consumer demand and higher energy costs impacted by geopolitical events in the Middle East.
'Mini Stimulus' Package Aims to Stabilize Growth
In response to months of economic deceleration, China's top economic and financial policymakers unveiled a suite of targeted fiscal and monetary measures on Tuesday. These steps aim to reduce financing costs, expand central bank lending, and provide stronger counter-cyclical support to ensure the economy hits its full-year growth target.
Key among the announced initiatives were mortgage subsidies for eligible homebuyers, pledged by the finance ministry. Concurrently, the People's Bank of China broadened the scope for a lending support program, enabling banks to finance infrastructure projects and provide loans to strategic sectors like technology and small businesses. The central bank also lowered the interest rate on this program to enhance housing affordability.
However, analysts remain cautious about the impact of these measures. Economists at Nomura, for instance, described the new round of support as "not sufficient to bolster growth," arguing that the steps are too small to tackle the underlying barriers to sustained economic expansion.
Larry Hu, China economist at Macquarie, characterized the policy announcements as a "mini stimulus," sufficient "just enough" to achieve this year's modest growth target of 4.5%-5%. Hu anticipates Beijing may show less urgency in boosting demand as long as exports maintain their strength.
Exports have emerged as a primary driver for China's economy this year. Yet, this engine shows signs of strain as international trading partners voice concerns over China's growing excess manufacturing capacity and its heavy reliance on foreign demand amidst sluggish domestic consumption.
Hu projects China's real GDP growth to increase to 4.4% and 4.7% in the final two quarters of 2026, respectively, bouncing back from a three-year low of 4.3% in the second quarter.
Modest Housing Boost Expected
Goldman Sachs analysts view Tuesday's measures as more significant for their "policy signal than as a near-term growth impulse." They noted that targeted credit easing primarily supports the supply side, with its translation into investment and broader growth dependent on policy implementation.
The new one-year mortgage subsidy could offer some immediate relief to housing demand, potentially boosting home sales in the short term by encouraging early first-home purchases. However, Goldman Sachs anticipates only a modest overall growth boost due to stringent eligibility requirements: the subsidy is limited to first-time buyers of homes priced at 1.5 million yuan ($224,000) or less, and no larger than 120 square meters.
— CNBC's Evelyn Cheng contributed to this report.
