China's Economic Resurgence: Promising Signs of Factory Output and Surging Golden Week Travel

Chinas manufacturing sector is seeing a rebound in growth, while the annual "Golden Week" holiday is witnessing a surge in travel, raising hopes that the economy is regaining momentum following a significant slowdown earlier this year. According to the National Bureau of Statistics, Chinas official manufacturing purchasing managers index (PMI) climbed to 50.2 in September, up from 49.7 in August, marking the first expansion since March. A PMI reading above 50 signifies growth, while a reading below indicates contraction.

Services and construction activity saw a notable boost last month, as indicated by a separate index reaching its highest level in three months at 51.7. Furthermore, a recent private measure of activity released on Sunday confirmed the continued growth of the world’s second-largest economy, albeit at a slower rate compared to the previous month. PMI data published by Caixin Media and S&P Global highlighted a slight deceleration in both manufacturing and services sectors.

Economists widely acknowledge that the official PMI survey primarily encompasses larger, state-owned enterprises, whereas the Caixin reading concentrates on smaller, private firms.

The PMI data reinforces indications that the Chinese economy is potentially gaining momentum once again, following a significant slowdown in GDP growth to a mere 0.8% during the June quarter, compared to the preceding three months. This deceleration was attributed to the waning effects of the post-pandemic boom, declining consumer confidence, and the persistent impact of a severe property market downturn on overall economic activity.

A worker operates machines at a texile factory in Nantong, in eastern China's Jiangsu province on September 14, 2023.

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Bumper travel figures have also given analysts cause for cautious optimism.

China began its longest public holidays of the year on Friday, lasting for eight days until October 6. This holiday period encompasses both the Mid-Autumn Festival and the annual National Day holiday. On the first day of the holiday, China State Railway Group reported a new record of 20.1 million passenger trips on the country's national railway. The Ministry of Transport predicts that highway traffic will also reach a record high, with approximately 66 million vehicles on the roads.

During the entire holiday period, the Ministry of Culture and Tourism announced an anticipated increase of 15% in domestic trips made by rail, air, roads, and waterways compared to 2019. A staggering total of 896 million trips are expected to be taken, despite the seven-day duration of the National Day break.

Passengers crowd a railway station in Hangzhou in China's eastern Zhejiang province on September 28, 2023.

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The ministry predicted that domestic tourist spending would reach 782.5 billion yuan ($109 billion) during the specified period, representing a 20% increase from 2019 when travel was hindered by pandemic lockdowns. Chinese officials are optimistic that the surge in domestic road and rail travel could stimulate the economy, which has been dealing with sluggish domestic demand since the lifting of zero-Covid restrictions in December.

Recent data indicates that there has been a stabilization in economic conditions following the government's increased efforts to boost consumer spending and expedite infrastructure projects. According to data released by the NBS last week, profits at industrial firms surged by 17.2% in August, rebounding from a 6.7% decline in July. Additionally, industrial production grew by 4.5% in August compared to the same period last year, surpassing the 3.7% growth recorded in July. Furthermore, retail sales experienced a notable increase of 4.6% in August, marking the highest level of growth since May.

"We are witnessing mounting evidence of a stabilization in short-term growth," stated Nomura analysts in a research note released on Saturday. They attributed this positive trend, at least in part, to the implementation of various policy measures introduced since late July.

Beijing has incrementally rolled out a series of support measures to kickstart the economy, but has cautiously avoided implementing any massive stimulus programs amid concerns about the surging levels of debt.

Hui Ka Yan, chairman of property developer China Evergrande, attends a news conference on annual results in Hong Kong, China March 29, 2016.

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Evergrande's chairman has been detained. The company will struggle to survive

In recent months, various actions have been implemented, including reducing interest rates, eliminating limitations on home and car purchases, and granting local authorities the ability to expedite borrowing for infrastructure investments. Citi analysts stated in a research report on Sunday that they are even more certain about the current phase of the economic cycle and anticipate potential growth beyond their previously projected 4.7% GDP forecast for 2023.

The International Monetary Fund stated on Thursday that China is capable of reaching approximately 5% growth this year, aligning with its government's growth objective. Julie Kozack, the spokesperson, noted that recent data indicated signs of stability in China's economy.

In contrast, the World Bank expressed doubts. On Sunday, the organization revised its projected China GDP growth for 2024 from 4.8% to 4.4%, citing ongoing challenges such as high debt levels, a crisis in the property market, and an aging population.

Although domestic travel during the Golden Week holiday seems to be robust, there is a decline in the number of Chinese consumers traveling outside of mainland China. According to initial data from ForwardKeys, a global travel data provider, Chinese travel within Asia has decreased by 33% compared to the period before the pandemic. The government of Hong Kong reported that on the first day of the Golden Week holiday, the number of Chinese tourists coming into the city was still less than half of the level seen in 2018.

The property sector is also not out of the woods yet.

Troubles at Evergrande Group, the worlds most indebted developer, have mounted after its chairman Xu Jiayin was detained.

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Xu, the embattled property giant, was subjected to "mandatory measures" last week due to suspected crimes, thus creating significant uncertainty regarding the company's future.

Nomura analysts expressed caution about growth despite some indications of stabilization.