Has China’s economy bottomed out? Factory production and Golden Week travel offer glimmers of hope

CNN – Hong Kong (CNN) – A return to growth in China’s manufacturing sector and a boom in travel during the annual “Golden Week” are raising hopes that the economy could regain momentum after a sharp slowdown this year.

China’s official manufacturing purchasing managers’ index (PMI) rose to 50.2 from 49.7 in August, the first time it showed expansion since March, the National Bureau of Statistics said on Saturday. A PMI reading above 50 indicates growth or expansion, while any reading below indicates a decline.

Activity in services and construction also accelerated last month, reaching 51.7, its best reading in three months, according to a separate index.

A private activity indicator released on Sunday also showed that the world’s second-largest economy continued to grow, albeit more slowly than last month. PMI data released by Caixin Media and S&P Global showed that both the manufacturing and services sectors lost some momentum.

Economists generally believe that the official PMI survey mainly covers larger state-owned companies, while the Caixin survey focuses on smaller private companies.

The PMI readings add to signs that China’s economy could be regaining momentum after GDP growth slowed to just 0.8% in the June quarter compared with the previous three months as a post-pandemic boom waned , consumers lost confidence and a deep crisis occurred. The real estate collapse continued to weigh heavily on activity.

The record travel figures also give analysts cause for cautious optimism.

China on Friday kicked off its longest series of public holidays this year, stretching over eight days until October 6. The break combines the Mid-Autumn Festival and the annual National Day holiday in early October.

According to the China State Railway Group, the country’s national railway carried 20.1 million passenger trips on the first holiday, setting a new record. The Ministry of Transport assumes that highway traffic will also reach a record level with an estimated 66 million vehicles.

According to the Ministry of Culture and Tourism on Sunday, 896 million domestic trips were expected to be made by rail, air, road and waterways for the entire break, a 15% increase from 2019, when the National Day holiday lasted seven days.

The ministry forecast that total spending by domestic tourists would reach 782.5 billion yuan ($109 billion) during the period, up 20% from 2019, before the pandemic stopped most people from traveling.

Chinese officials hope record domestic road and rail transport could help boost an economy that has struggled with subdued domestic demand since zero-Covid restrictions ended in December.

Recent data shows signs of stabilization as the government stepped up efforts to boost consumer spending and accelerate infrastructure projects. According to data released by the NBS last week, profits at industrial companies rose 17.2% in August, reversing a 6.7% decline in July.

Industrial production also rose 4.5% year-on-year in August, accelerating from the 3.7% growth recorded in July. Retail sales rose 4.6% in August, the strongest growth since May.

“We are seeing increasing signs of near-term growth stabilization,” Nomura analysts said in a research note on Saturday, partly due to the series of policy measures announced since late July, they added.

Beijing has introduced a series of selective support measures to restart the economy, but has refrained from offering major stimulus due to concerns about rising debt.

Measures taken in recent months include cutting interest rates, lifting restrictions on home and car purchases and allowing local governments to accelerate borrowing for infrastructure investments.

“We remain confident in the cyclical bottom and see upside risks to our 4.7% GDP forecast for 2023,” Citi analysts said in a research note on Sunday.

On Thursday, the International Monetary Fund said China could still achieve growth of about 5% this year, meeting its government’s growth target. Spokeswoman Julie Kozack said the fund had seen signs of stabilization in the Chinese economy in recent data.

However, the World Bank is not so sure. On Sunday, the company cut its forecast for China’s GDP growth in 2024 to 4.4% from 4.8%, citing ongoing difficulties such as high debt, the housing market crisis and an aging population.

While domestic travel appears to be strong for the Golden Week holiday, Chinese consumers are leaving the mainland in smaller numbers.

Preliminary statistics from ForwardKeys, a global travel data provider, showed last week that Chinese travel within Asia fell 33% compared to pre-pandemic levels. On the first day of Golden Week, the number of tourists from mainland China entering Hong Kong was still less than half the 2018 level, the city government said over the weekend.

The real estate sector is not out of the woods yet either.

Problems at Evergrande Group, the world’s most indebted developer, have increased following the arrest of its chairman Xu Jiayin.

According to the company, “compulsory measures” were taken against Xu last week on suspicion of a crime, creating serious uncertainty about the future of the troubled real estate giant.

“Despite signs of stabilization, we remain cautious on growth,” Nomura analysts said.

The-CNN-Wire™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery company. All rights reserved.