High-tech entities cushion PMI slowdown

China's manufacturing sector continued to draw strength from high-tech industries in October, underscoring the role of new growth drivers in bolstering economic resilience even as overall factory activity slipped back into contraction territory, officials and experts said.

They added that the latest indicators, closely watched for early signs of economic momentum, suggest some moderation in activity at the start of the fourth quarter, reinforcing expectations that policymakers will accelerate the implementation of existing stimulus measures to ensure policy support feeds through more effectively to the real economy.

Their comments came as data released on Saturday by the National Bureau of Statistics showed that the official purchasing managers' index for the manufacturing sector fell to 49.3 in October, down from 50.1 in September, indicating a mild contraction as it dipped below the 50-point mark that separates expansion from contraction.

Huo Lihui, a statistician with the bureau, attributed October's decline partly to demand pulled forward ahead of the National Day holiday and a volatile global environment.

"Manufacturing activity moderated in October, but new growth drivers were an increasingly important stabilizing force, with production and demand in those industries continuing to expand," said Wen Tao, an analyst at the China Logistics Information Center.

High-tech manufacturing, in particular, remained firmly in expansion territory, with its PMI standing at 51.3 in October, marking the 21st consecutive month above the 50-point threshold. Equipment manufacturing also continued to expand, posting a PMI of 50.6.

Wang Qing, chief macroeconomic analyst at Orient Golden Credit Rating International, said the sectors' sustained outperformance was underpinned by buoyant supply and demand conditions and favorable policy tailwinds.

The momentum is also feeding through to corporate earnings. Zhongji InnoLight, a Chinese maker of high-speed optical modules, said in its third-quarter report that net profit attributable to shareholders more than tripled year-on-year to 22.24 billion yuan ($3.34 billion) in the first nine months. The company said demand for high-speed optical modules "remained robust" as the global artificial intelligence infrastructure buildout continued.

Notably, manufacturers continued to show relatively strong confidence in the outlook, with the subindex tracking expectations for production and business operations holding above 53 for a ninth consecutive month at 53.4 in October despite a slight dip from September.

"The manufacturing PMI is likely to rebound to around 49.7 in November as holiday effects fade," Wang said, adding that measures to bolster investment should gain traction and provide a solid underpinning for manufacturing activity through the year-end.

However, analysts cautioned that economic momentum moderated in October as demand remained subdued and smaller manufacturers continued to face pressure.

The new orders subindex fell for a second consecutive month in October, NBS data showed. Medium-sized and small manufacturers also moved deeper into contraction, with their PMIs falling to 48.4 and 47.5, respectively.

Xiong Yuan, chief economist at Guosheng Securities, said with China's annual growth target of 4.5 to 5 percent still comfortably within reach, near-term policy efforts are likely to center on accelerating the implementation of existing measures.

Xiong's emphasis on policy implementation echoes a call in the communique of the just-concluded fifth plenary session of the 20th Central Committee of the Communist Party of China to "make full and proper use of macro policies" and "tap deeper into the potential of domestic demand".

The government has already stepped up efforts to bolster demand and ease financing pressures on smaller businesses, expanding credit support for firms and consumers while accelerating special-purpose bond issuance and tapping unused local government debt quotas.

According to Li Xuhong, vice-president of the Beijing National Accounting Institute, extending interest subsidies to working capital loans for micro-, small- and medium-sized private enterprises in August supported more than 1.8 trillion yuan in new lending over two months. She added that the policy had helped "ease pressure on these businesses and bolster domestic demand".

Wen Bin, chief economist at China Minsheng Bank, said the policy focus is shifting from expanding funding and deploying more tools toward using funds more efficiently and ensuring that support reaches the real economy more effectively.