Manufacturing and construction PMIs fell back into contraction, with both declines exceeding their averages for the same period over the past five years. Export-oriented companies and high-tech manufacturing remained resilient, but employment and property demand were weak.
Guests invited to a Goldman Sachs discussion on China’s macroeconomy expect the 2027 growth target to be no significantly lower than 4.5%, with government investment potentially continuing to compensate for insufficient private demand. Meanwhile, public finances face sustained pressure, and export growth could slow from more than 20% in the first three quarters of 2026 to about 10%.
The central bank will raise the foreign currency deposit reserve requirement from 15 November. Nomura estimates the move could absorb 24 billion dollars of long-term onshore foreign currency liquidity and believes the policy is focused on slowing the pace of appreciation.
The RatingDog manufacturing PMI edged lower, while output reached its highest level since April; companies’ inventory building diverged from trends in employment and selling prices, and the deployment of fiscal funds is key to a broader investment recovery.
As of September 2026, manufacturing investment fell 2.1% year on year, while nominal industrial output grew 8.2%, widening the gap between their growth rates to negative 10.3 percentage points. Morgan Stanley believes slower capacity expansion and profit growth help reduce risks in the industrial and financial systems, although earnings trends vary across industries.
Goldman Sachs’ fourth-quarter survey shows respondents generally expect China’s growth momentum to remain broadly unchanged over the next six months, although more anticipate a slowdown than an acceleration. Most expect modest fiscal easing and remain cautious about a rebound in consumption and inflation.
The RatingDog China Manufacturing PMI fell to 52.0 in October from 52.1 in the previous month, above Goldman Sachs’ forecast. The output index rose slightly, but the new export orders index retreated, and the gap between the input and output price indices continued to point to margin pressure.
The central bank has launched a third round of the Securities, Funds and Insurance Companies Swap Facility and cut the interest rate on relending for share repurchases and stake increases. Nomura believes the policies show concern about sustained stock-market declines and leverage risks, but says their impact should not be overstated because both tools have been in place for two years.
From 2 November, the overnight reverse repo rate replaces the 7-day rate as the policy benchmark. Goldman Sachs believes the adjustment will allow more flexible liquidity provision and reflects policymakers’ focus on credit risk.
The manufacturing PMI fell to 49.3 and the non-manufacturing PMI to 49.7, both below Goldman Sachs forecasts and the Bloomberg survey consensus. Goldman Sachs said seasonal factors explained part of the decline, but activity slowed across manufacturing, services and construction.
The overnight reverse repo rate has been set at 1.25%, replacing the 7-day operation rate as what Nomura considers the main policy anchor. The operating corridor has moved down by 15 basis points, signaling greater tolerance for ample liquidity, but the change in tenor itself will not automatically lead to a reduction in the LPR.
Manufacturing and non-manufacturing PMIs both came in below market expectations. Nomura believes the manufacturing decline mainly reflected seasonal factors, but the divergence between production and orders and weakness in construction show that underlying growth momentum remains soft.
Citi’s monthly conference call expects China’s economic growth to slow to 4.2% in 2027, with the growth target potentially lowered to “around 4.5%.” Participants advocated greater fiscal expansion than in Citi’s baseline scenario and expected pressure on real estate investment to outlast the period of home price adjustment.
China’s infrastructure investment has shifted from growth in previous years to contraction, while local land revenue and the borrowing capacity of financing vehicles are both constrained. Barclays believes the latest round of leadership transitions could still spur investment, but both its funding sources and destinations will change.
Goldman Sachs’ investment tracker shows China’s real investment grew 1.9% year on year in the third quarter, its slowest pace since the fourth quarter of 2021. The bank cut its full-year augmented fiscal deficit forecast and raised its estimate of the property sector’s drag on growth.
Goldman Sachs' China Current Activity Indicator rose to a month-on-month annualized 5.4% in September, with manufacturing the main driver. Meanwhile, import-implied domestic demand growth slowed, investment and inventory indicators weakened in the third quarter, and fiscal and financial conditions tightened somewhat.
Industrial enterprise profits rose 14.4% year on year in September, up from 4.2% in August. JPMorgan believes AI demand and upstream prices supported profits, but continued weakness in automotive and consumption-related manufacturing prolonged the divergence.
Morgan Stanley expects China’s export share to keep rising and Industry 5.0 to create long-term investment opportunities. But weaker employment transmission, household deleveraging and excess capacity make it difficult for strong exports to translate quickly into broad-based reflation.
Goldman Sachs believes the rise in year-on-year industrial profit growth to 14.1% in September was mainly due to base effects. On a seasonally adjusted basis, profits were flat month on month and revenue fell 0.1%. The bank expects both the manufacturing and non-manufacturing PMIs to decline in October.
Goldman Sachs expects high-tech industries to contribute about 2 percentage points a year to China's real GDP growth in 2026–2030, but the same amount of spending generates less employment and labor income than in real estate and services.
