An indicator of Chinese factory production weakened to its lowest level in more than two years in October. This is a new sign that the country's economy is under pressure, even though the impact of US tariffs on trade data is not yet visible.
China has already adopted a series of stimulus measures, including accelerated infrastructure spending and multiple cuts in bank reserves. However, the slowdown may force policymakers to take stronger action, possibly paralleling efforts to reduce excessive debt and avoid financial risks.
China's economy grew by 6.5 percent in the third quarter, the weakest quarterly expansion since 2009, but still in line with the government's official goal of "around 6.5 percent" for 201
The purchasing managers of the Government for production "According to figures released on Wednesday, the index fell from 50.8 in September to 50.2 in October. This was the weakest since July 2016, but still above the 50-point threshold that separated the expansion from the contraction. A separate purchasing managers' index for services fell from 54.9 to 53.9. This is the lowest level since August 2017.
"The economic conditions facing the Chinese private sector are far worse than stated in the headlines," said Raymond Yeung, Chief Economist for Greater China at ANZ Bank, wrote on Wednesday.
"In addition to an expected reduction in reserve requirements next January, we expect future supportive policies to be measured. The primary task of the government is to avoid a financial boom.
The impact of US tariffs has so far not been reflected in trade data. Chinese goods exports rose by a healthy 12.2 percent year in the first three quarters.
Economists, however, believe that the effect will manifest itself in the coming weeks. A PMI sub-index covering the new index orders fell from 48.0 to 46.9 in October. This is the lowest level since January 2016. A survey of Chinese exporters by FT Confidential Research also showed a slowdown in October, although the FTCR index remained expansive.
"China's October Manufacturing PMI was significantly weaker than the market expected. Both new orders (above all in exports) and factory production showed softness, which points to slower production in view of the sluggish domestic mood and increasing foreign trade tensions, "wrote Serena Zhou, Asia economist with Mizuho Securities in Hong Kong.
Commenting on Wednesday's release, Zhao Qinghe, Chief Statistician at China's National Bureau of Statistics, cited National Day in early October and external uncertainty surrounding the PMI slowdown.
Despite weak data, China's stock market rose on Wednesday and the CSI 300 blue chip index gained 1.3 percent in the last trading session. Supervising statements from the Securities and Markets Authority helped offset losses after the index reached a 31-month low last week.
Follow @gabewildau on Twitter