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

By Laura He, CNN

Hong Kong (CNN) — A return to growth in China’s manufacturing sector and a boom in travel during the annual “Golden Week” holiday is fueling hopes that the economy could be regaining momentum after a major slowdown this year.

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

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

A private gauge of activity released Sunday also showed the world’s second biggest economy continuing to grow, albeit at a slower pace than the previous month. PMI data released by Caixin Media and S&P Global showed both manufacturing and services losing some momentum.

Economists widely believe the official PMI survey covers mostly larger, state-owned enterprises, while the Caixin reading is focused on smaller, private firms.

The PMI readings have added to signs that the Chinese economy may be picking up momentum again after GDP growth slowed to just 0.8% for the June quarter compared to the three months prior, as a post-pandemic boom faded, consumers lost confidence and a deep property slump continued to weigh heavily on activity.

Bumper travel figures have also given analysts cause for cautious optimism.

China on Friday kicked off the longest stretch of public holidays this year, spanning eight days to Oct. 6. The break combines the Mid-Autumn Festival and the annual National Day holiday at the start of October.

On the first day of the holiday, the country’s national railway handled 20.1 million passenger trips, setting a new record, according to data released by China State Railway Group. The Ministry of Transport expects highway traffic also hit a record, with an estimated 66 million vehicles on the roads.

For the entire break, 896 million domestic trips were expected to be made by rail, air, roads and waterways, up 15% from 2019, when the National Day holiday was seven days long, according to the Ministry of Culture and Tourism on Sunday.

The ministry forecast that total domestic tourist spending would reach 782.5 billion yuan ($109 billion) over the period, up 20% from 2019, before pandemic lockdowns prevented most people traveling.

Chinese officials hope the record domestic road and rail travel could help boost an economy that has been struggling with tepid domestic demand since the end of zero-Covid restrictions in December.

Recent data have shown signs of stabilization after the government intensified efforts to spur consumer spending and accelerate infrastructure projects. Profits at industrial firms jumped 17.2% in August, reversing a 6.7% drop in July, according to data published by the NBS last week.

Industrial production also increased 4.5% in August from a year earlier, accelerating from the 3.7% growth registered in July. Retail sales rose 4.6% in August, the fastest growth since May.

“We see increasing evidence of a near-term growth stabilization,” Nomura analysts said in a research note on Saturday, thanks partly to the raft of policy measures unveiled since late July, they added.

Beijing has dribbled out a series of piecemeal support measures to revive the economy, but has refrained from any giant stimulus due to worries about soaring debt levels.

Measures taken in the past few months include trimming interest rates, scrapping restrictions on home purchases and car buying, and allowing local governments to accelerate borrowing for infrastructure investment.

“We are further convinced of the cyclical bottom and see upside risks to our 4.7% GDP forecast for 2023,” Citi analysts said in a research report on Sunday.

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

The World Bank is not so sure, however. On Sunday, it cut its 2024 forecast for China GDP growth to 4.4% from 4.8%, citing persistent difficulties such as elevated debt, the property market crisis, and an aging population.

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

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

The property sector is also not out of the woods yet.

Troubles at Evergrande Group, the world’s most indebted developer, have mounted after its chairman Xu Jiayin was detained.

Xu has been subject to “mandatory measures” on suspicion of crimes, according to the company last week, which cast serious uncertainty on the future of the embattled property giant.

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

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