China factory activity ends 2-month slump in September

BEIJING, 30 SEPTEMBER 2026 —

China’s factory activity snapped a two-month contractionary streak in September, returning to growth as deepening economic malaise prompts policymakers to ramp up stimulus steps and bolster growth.

The official manufacturing purchasing managers’ index (PMI) rose to 50.1 from 49.8 in August, according to data released Wednesday by the National Bureau of Statistics (NBS).

This figure aligned precisely with the modest expansion of 50.1 forecast by analysts in a Reuters poll, marking a critical inflection point for the world’s second-largest economy.

The modest expansion was driven by accelerated activity in equipment and high-tech-related manufacturing, as well as consumer industries, according to NBS chief statistician Huo Lihui. The non-manufacturing PMI also returned to expansionary territory, climbing to 50.2 as business activity picked up in the services sector. Notably, the construction sector reached its highest level this year, indicating a broader recovery across industrial and service domains.

This simultaneous improvement in both manufacturing and non-manufacturing sectors suggests that the recent policy interventions are beginning to permeate various layers of the Chinese economy, moving beyond isolated pockets of growth.

Manufacturers in the country have benefited from the artificial intelligence hardware boom, which has provided a significant tailwind for industrial output. However, weak consumer demand at home remains a major worry for the sector. Additionally, higher energy costs owed to the Middle East war are weighing on margins, creating a complex environment where demand-side weakness and supply-side cost pressures coexist.

Exports have been one of the few drivers of China’s economy this year, but that engine is showing signs of strain. Trading partners are voicing growing concerns over the country’s excess manufacturing capacity and heavy reliance on foreign demand, while domestic consumption lags behind expectations.

In response to these challenges, China’s top economic and financial policymakers unveiled targeted fiscal and monetary measures on Tuesday. The package aims to lower financing costs and boost central bank lending, as Beijing calls for stronger counter-cyclical support to keep the economy on track to meet its full-year growth target. The timing of these announcements, just before the release of the September PMI data, underscores the urgency with which Beijing is attempting to stabilize momentum.

The measures are designed to address the structural imbalances that have characterized the recent economic slowdown, particularly the disconnect between robust industrial production and sluggish household spending.

Market reaction to the policy package has been mixed, with analysts questioning the sufficiency of the steps taken. A team of economists at Nomura wrote in a note that "the new round of supportive measures is not sufficient to bolster growth," adding that the steps were too small to address the real barriers to growth. This skepticism reflects a broader concern that without more aggressive intervention, the recent uptick in PMI data may prove temporary.

The Nomura team’s assessment highlights the gap between the scale of the economic challenge and the magnitude of the policy response, suggesting that further measures may be required to sustain the recovery.

Goldman Sachs economists echoed the caution, stating that "the measures are more significant as a policy signal than as a near-term growth impulse." They noted that targeted credit easing mainly supports the supply side, and whether it translates into investment and broader growth will depend on how the policies are implemented. This distinction is crucial for investors and policymakers alike, as it implies that the immediate impact on aggregate demand may be limited.

The effectiveness of the stimulus will hinge on the execution of these measures, particularly in ensuring that lower financing costs reach the intended recipients and stimulate actual economic activity rather than merely reshuffling existing credit flows.

One specific component of the Tuesday announcement received particular attention: the mortgage subsidy. Goldman Sachs analysts noted that this is more direct support for housing demand and may lift home sales in the short term. With the program set to run for one year, it could also pull forward some first-home purchases, potentially providing a near-term boost to the real estate sector.

This aspect of the stimulus package is significant given the prolonged downturn in China’s property market, which has been a major drag on overall economic growth. By targeting housing demand directly, Beijing is attempting to address one of the key sources of consumer uncertainty and wealth effect erosion.

For Malaysian and regional readers, the implications of China’s economic trajectory are profound. As a major trading partner, Malaysia’s export performance, particularly in electronics and commodities, is closely linked to Chinese industrial activity. The return to growth in China’s manufacturing sector, driven by high-tech and equipment industries, may provide a supportive backdrop for Malaysian exporters in these sectors.

However, the persistent weakness in Chinese consumer demand and the strain on exports due to global trade tensions pose risks to the broader regional economy. The effectiveness of Beijing’s stimulus measures will be a key determinant of whether this recovery translates into sustained demand for regional goods and services.

As policymakers in the region monitor China’s policy developments, the balance between supply-side support and demand-side stimulus will remain a critical factor in shaping the regional economic outlook. The next steps in China’s policy implementation will closely influence the pace of recovery across Asia, making the September PMI data and the accompanying stimulus package a pivotal moment for regional market participants.

Related: National Bureau of Statistics (NBS) · Huo Lihui