How much did the October decline exceed seasonal norms?

  • The official manufacturing PMI fell from 50.1 in September to 49.3 in October, below the Bloomberg market consensus of 49.9 and Barclays’ forecast of 49.5, returning to contraction.
  • The National Day holiday and demand brought forward ahead of it caused disruption, but the manufacturing PMI fell 0.8 percentage points, more than the average decline of about 0.5 percentage points for the same period in 2021–2025. Barclays therefore sees weak underlying momentum, particularly in building materials, energy-intensive industries, textiles and consumer goods manufacturing.
  • Production and orders weakened together: the production index fell to 49.8, while the new orders index returned to contraction after two consecutive months above 50. Employment indices for manufacturing, services and construction were all in contraction.

What support and pressures does manufacturing face?

  • External demand was relatively resilient, but surveys diverged: the official manufacturing new export orders index fell from 50.0 to 48.7, while the RatingDog manufacturing PMI, whose survey has a higher share of export-oriented companies, was 52.0, broadly unchanged from 52.1 in September. Its survey showed that new orders from customers in Asia, Europe and Africa continued to grow, but at a slower pace.
  • Sector performance diverged markedly: the high-tech manufacturing PMI fell to 51.3, remaining in expansion for the 21th consecutive month; equipment manufacturing stood at 50.6, while energy-intensive manufacturing fell from 48.0 to 47.3.
  • Cost pressures eased but did not disappear. In October, the manufacturing input price index fell to 56.8 and the output price index fell to 51.7. The gap narrowed from 6.8 percentage points in September to 5.1 percentage points, with input prices still rising faster than output prices.

Why was construction weaker than seasonal norms?

  • The construction PMI fell from 50.3 in September to 48.0 in October, a decline of 2.3 percentage points, also exceeding the average October decline of about 1.2 percentage points over the past five years. Holiday work stoppages were one reason; Barclays believes the property downturn remained the main drag.
  • The floor area of new homes sold in 30 major cities fell 18% year on year in October, a steeper decline than 11% in September. Meanwhile, infrastructure investment has contracted recently, and Barclays sees limited support for construction activity from infrastructure.
  • Policy support is expected to help sustain infrastructure activity, but the recent funding impetus has weakened: local government special bond issuance in October accounted for 7.6% of the annual quota, below the average of about 13% from 8 through September. Barclays noted that tighter local fiscal constraints, fewer eligible projects and uncertainty ahead of local leadership transitions were all associated with weaker infrastructure investment this year.

Can services offset weakness elsewhere?

  • The non-manufacturing PMI fell 0.5 percentage points to 49.7 in October, while the new orders index fell further from 46.5 to 44.4, indicating that demand remained weak. The services PMI edged down to 50.0, at the dividing line between expansion and contraction.
  • The National Day holiday boosted rail transport, accommodation, and cultural, sports and entertainment activities. Services including water transport, postal services and the internet also remained strong; however, financial-sector activity fell markedly, becoming the main drag on the overall services index, while insurance and real estate services remained in contraction.
  • Looking ahead, Barclays believes tightening local finances could shift funding from local borrowing to central government financing and shift the focus of competition from infrastructure to industrial policy, while also creating risks of duplicated capital expenditure and global spillovers.