China’s Official PMIs Re-enter Expansion on Production Boost, but Demand Lags

China’s official Purchasing Managers’ Index (PMI) figures for September showed broad-based improvement, with both manufacturing and non-manufacturing sectors returning to expansion territory. PMI Manufacturing rose from 49.8 to 50.1, aligning with market expectations and ending two consecutive months of contraction, while PMI Non-Manufacturing climbed from 49.0 to 50.2, surpassing the consensus estimate of 49.3. The PMI Composite strengthened from 49.5 to 50.7, signaling a broader pickup in economy-wide output at the close of the third quarter. The upbeat figures were supported by seasonal production strength, reduced weather-related disruptions, and firmer activity across both industrial and service sectors.

A closer look at the manufacturing sub-indices revealed that output continued to outpace demand. The production index surged from 50.4 to 51.7, whereas new orders slipped slightly from 50.6 to 50.5 and new export orders fell from 50.1 to 50.0. Backlogs declined from 46.7 to 46.0, and employment weakened from 48.7 to 48.4, underscoring a disconnect where production is expanding without a corresponding rise in underlying demand. Compounding this, price pressures intensified notably, with input prices jumping from 56.6 to 60.8 and output prices rising from 50.4 to 54.0, indicating a stronger cost impulse even as order growth remained subdued.

The non-manufacturing sector delivered the clearest upside surprise, with construction activity rising from 46.9 to 50.3 and services expanding from 49.3 to 50.2. While new orders improved markedly from 44.1 to 46.5, they remained well below the 50 mark, and employment rose only modestly from 45.4 to 45.9. Input prices increased from 51.1 to 52.5, and selling prices returned to expansion, moving from 49.3 to 50.3. Business expectations also strengthened from 55.0 to 55.5. Overall, the official surveys point to a stabilization in economic activity, though the recovery remains uneven, with output and business activity advancing faster than orders and hiring.

Private-sector surveys presented an even more robust picture. RatingDog PMI Manufacturing rose from 51.5 to 52.1, while PMI Services increased from 51.4 to 51.6 and the PMI Composite climbed from 52.1 to 52.4. The services survey indicated that new business was expanding at its fastest pace since June, export business accelerated, and employment rose for a fifth consecutive month, albeit at a slower rate. Conversely, output prices fell for the first time in four months and at the fastest pace since April 2022, highlighting intense competitive pressure and eroding pricing power across the sector despite firmer activity levels.

Official Manufacturing PMI — Data Summary

Official Manufacturing — Price Indicators

The headline returned to expansion, but the improvement was led by production rather than demand, while both input and selling-price indices rose sharply.

Official Non-Manufacturing PMI — Data Summary

Official Non-Manufacturing — Price Indicators

Non-manufacturing delivered the clearer upside surprise, with both construction and services returning above 50, although new orders and employment remained in contraction.

Composite and Private PMIs

RatingDog services activity expanded at the fastest pace in three months, while new business strengthened and employment increased for a fifth consecutive month. The private composite also strengthened from 52.1 to 52.4.

Key Takeaways

• Official manufacturing returned to expansion, with PMI Manufacturing rising from 49.8 to 50.1 and matching expectations.
• The improvement was production-led rather than demand-led. Production jumped from 50.4 to 51.7, while new orders edged lower to 50.5 and export orders slipped to 50.0.
• Manufacturing backlogs and employment weakened further, reinforcing the message that demand and hiring continue to lag output.
• Factory price pressures intensified sharply, with input prices rising from 56.6 to 60.8 and output prices from 50.4 to 54.0.
• Non-manufacturing surprised positively, rising from 49.0 to 50.2 against expectations of 49.3, as both services and construction returned to expansion.
• Non-manufacturing demand remained soft despite improving: new orders rose from 44.1 to 46.5 but stayed clearly below 50, while employment remained weak at 45.9.
• The official PMI Composite rose from 49.5 to 50.7, showing a broader return to expansion across the economy.
• Private surveys were stronger still, with RatingDog manufacturing at 52.1 and services at 51.6. The services survey showed firmer new business and exports, but intense competition drove output prices down at the fastest pace since April 2022.
• Overall, September points to broader stabilization in activity, but not yet a matching recovery in demand. Production and business activity are improving faster than orders and employment.

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