China factory activity seen holding flat in October as manufacturing split persists

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China factory activity October

Highlights

China's official manufacturing PMI is expected to dip to 50 in October from 50.1 in September, signaling flat factory activity amid sectoral divergence.
High-tech industries, notably in chips and electronics, report surging profits due to higher prices and government support, while traditional manufacturing remains weak.
Policymakers allocate 550 billion yuan in unused debt quotas to support infrastructure, while private RatingDog manufacturing PMI is forecast to ease to 51.6 in November from 52.1.

October PMI outlook points to uneven factory momentum

As reported by Reuters, the official manufacturing purchasing managers' index is expected to edge down to 50 in October from 50.1 in September, based on the median forecast in a poll of 23 economists. A reading above 50 indicates expansion, while a figure below that level signals contraction.

The survey result, due from the National Bureau of Statistics on Saturday, is set to offer an early snapshot of factory conditions after exports and industrial output helped lift third-quarter economic growth. China's GDP grows 4.5% in the July-to-September period, up from 4.3% in the previous quarter, leading analysts to expect the country can meet its full-year 4.5% to 5.0% growth target without further broad stimulus.

Industrial profit growth also improves in September, but the divide within manufacturing remains pronounced. Profits surge in advanced industries such as computer and electronic equipment manufacturing, while traditional sectors including furniture manufacturing continue to come under pressure.

Domestic demand weakness shapes broader industry outlook

High-tech manufacturers, including chipmakers, benefit from higher product prices linked to the global AI boom and from Beijing's support for technology self-reliance. By contrast, producers of goods tied more closely to domestic consumption face soft demand and rising input costs.

Household spending remains subdued as income gains do not broadly track the technology-sector upswing, while the prolonged property downturn continues to weigh on household wealth. Earlier data show retail sales still lagging industrial output in September, infrastructure investment shrinks 4.2% in the first nine months, and auto sales in China extend declines for a 12th straight month in September, intensifying domestic competition and pushing carmakers to look abroad.

Policymakers have recently introduced steps to channel cheaper credit into areas including infrastructure and technology, and have allocated 550 billion yuan in unused government debt quotas to reduce financial pressure on local governments and support infrastructure spending. The National Development and Reform Commission is also drafting an implementation plan for expanding domestic demand in 2026 to 2030, while the private RatingDog manufacturing PMI, compiled by S&P Global, is forecast to ease to 51.6 on November 2 from 52.1 in September.

Our earlier article on China’s third-quarter growth forecast explained that a modest GDP pickup was expected, helped by resilient exports and factory output even as consumption and private investment stayed weak amid the property slump. It also outlined Beijing’s late-September support steps—such as targeted rate cuts, mortgage subsidies, and the allocation of 550 billion yuan in unused debt quotas—to ease local-government strains and support infrastructure, while underscoring that momentum remained uneven and close to the lower end of the annual target range.

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