China's manufacturing sector experienced a significant contraction in September, with factory activity shrinking as both domestic and international demand cooled. The Caixin/S&P Global manufacturing PMI dropped to 49.3, down from 50.4 in August, missing analysts' forecasts of 50.5. This marked the lowest reading since July 2023 and indicates a sharp decline in new orders, impacting factory owners' confidence, which is now near record lows.
Despite aggressive government efforts to stimulate economic growth, including lowering interest rates and increasing banking liquidity, new orders—both domestically and abroad—fell sharply. The sub-index for new orders hit its lowest point in two years, signaling weakening demand. Foreign demand also declined at the fastest pace since August last year, with manufacturers attributing the drop to deteriorating global trade conditions.
The United States' tariffs on Chinese products, including electric vehicles (EVs), and the European Union’s pending decision on potential EV tariffs, have contributed to the slowdown in export demand. This has affected manufacturers' optimism, with confidence slipping to the second lowest level since data collection began in April 2012.
The decline in demand also led to reduced input prices and lower export charges as competition intensified. Firms responded by cutting jobs at the fastest rate in five months due to a reduced workload and cost concerns. The Caixin survey mainly covers smaller, export-oriented firms, which have been particularly affected by these economic challenges.
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