China's Factory Activity Shows Surprise Rebound in September, Hinting at Economic Resilience

In a positive signal for the global economy, China's manufacturing sector showed unexpected signs of life in September, with a key activity gauge hitting its highest level in six months. The latest official data paints a picture of an industrial landscape beginning to stabilize, bolstered by government efforts to rein in challenges, even as domestic demand remains sluggish.

Official PMI: Contraction Eases, Beating Expectations

Data from China's National Bureau of Statistics (NBS) revealed the official Manufacturing Purchasing Managers' Index (PMI) climbed to 49.8 in September. While this marks the sixth consecutive month the index has remained below the 50-mark that separates expansion from contraction, it surpassed the 49.6 forecast in a Reuters poll. This reading, the strongest since March, indicates the sector's contraction is decelerating at a faster-than-anticipated pace.

The prolonged downturn has been primarily driven by weak consumer spending at home and elevated U.S. tariffs, which have dampened exports to a key market.

The Green Shoots: A Production Revival

A deeper look into the sub-indexes reveals the core drivers of this nascent recovery:

The production sub-index jumped to a six-month high of 51.9, signaling a clear pickup in factory output.

The new orders sub-index also improved to 49.7, suggesting demand is gradually warming, though it remains in contraction territory.

The inventories index rose to 48.5, indicating that stockpiles of raw materials are being drawn down at a slower rate.

According to NBS statistician Lihui Huo, the overall improvement was led by manufacturers of equipment, high-tech goods, and consumer products, which saw significant gains in both output and new orders.

Private Survey Data: An Even Brighter Picture

Bolstering the optimistic outlook, a private survey from RatingDog presented an even more robust picture of the manufacturing sector. Its manufacturing PMI rose to 51.2 in September, solidly in expansionary territory and beating economists' forecasts. The firm attributed this improvement to rising new orders, including for exports.

The divergence between private and official surveys often stems from methodological differences. The official PMI polls a larger sample of over 3,000 companies, while private surveys like RatingDog's often focus on a smaller, potentially more export-oriented set of firms.

Broader Economic Context and Policy Watch

This tentative recovery in manufacturing unfolds against a backdrop of broader economic concerns. Recent data from China has pointed to a slowdown, with weakening retail sales and the Consumer Price Index (CPI) dipping back into negative territory, underscoring persistent deflationary pressures.

All eyes are now on an upcoming meeting of China's Politburo in October. It is expected to provide crucial signals on Beijing's policy response to the third-quarter slowdown.

"Since the GDP growth was above 5% in the first half-year, the government may tolerate the slowdown in H2 as long as it doesn’t jeopardize the full-year growth target of 5%," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

With the economy expanding 5.3% in the first half, China remains on track to meet its annual goal. However, long-term challenges persist. Larry Hu, chief China economist at Macquarie, noted that while China has "defied doom-sayers" before, maintaining an average growth of 4.5% from 2026 to 2035 will be a formidable task.