China's manufacturing sector unexpectedly contracts in October

(Sharecast News) - China's manufacturing sector experienced an unexpected contraction in October, according to official data released on Tuesday. The manufacturing purchasing manager's index (PMI) came in at 49.5 for the month, falling below the Reuters poll estimate of 50.2.

A PMI reading below 50 indicates a contraction in activity.

The news came on the back of recent data suggesting modest signs of recovery in the world's second-largest economy.

However, the official non-manufacturing PMI also declined in October, dropping to 50.6 from its September figure of 51.7 and falling short of the consensus estimate of 52.0.

To counteract economic challenges, China's government and central bank have recently maintained measures to stimulate growth, aiming to meet Beijing's annual growth forecast of around 5%.

"The downside surprise points to a fragile economic recovery and reinforces the case for continued support from the government," said Pantheon Macroeconomics chief China economist Duncan Wrigley.

"The NBS said the fall was largely due to the timing of the Golden Week holiday, meaning fewer working days in October, leading to weaker demand in the month."

Wrigley noted that the overall new orders index dipped to 49.5, suggesting a moderate decline in demand, while the production index also cooled to 50.9 in October, owing to the holiday effect, from 52.7 previously.

Overall new orders and production were the main downward drivers, accounting for a 0.8-point drag on the headline PMI in October.

The NBS noted divergence amongst industries, with food processing, car, ships and railing manufacturing reporting production indices well above the critical level of 50.

In contrast, oil, coal and gas processing, chemical fibres, and ferrous metal smelting and pressing industries all registered below 50.

Over 60% of surveyed participants in textile, chemical products and ferrous metal manufacturing reported insufficient demand in October.

"External demand waned further in October; the new export order index sank to 46.8, from 47.8 previously," Wrigley added.

"This contrasts with regional trade data that suggests a pickup in Asian demand.

"China's export trading conditions remain challenging for the rest of the fourth quarter."

Reporting by Josh White for Sharecast.com.