China’s manufacturing activity was worse than expected in October

China reported Tuesday that its official manufacturing Purchasing Managers’ Index for the month of October came in at 51.6, missing expectations.

Analysts polled by Reuters expected China to post official PMI of 52.0 for October, down from 52.4 in September.

A reading above 50 indicates expansion, while a reading below that signals contraction.

Both production and demand fell in October due to week-long public holidays and a slowdown in industries that were cutting excess capacity and pollution, the bureau added in a separate statement.

“Economic activity cooled this month, most likely due to disruptions to industrial activity in north-eastern China as a result of the ongoing environmental crackdown, as well as softer investment spending in response to slower credit growth and the unwinding of pre-Party Congress fiscal support,” Julian Evans-Pritchard, China economist at Capital Economics, said in a note following the data release.

Official services PMI meanwhile fell to 54.3 in October from 55.4 in September, the National Bureau of Statistics reported.

Tuesday’s PMI release marked the country’s first data release after last week’s Communist Party leadership confab.

A slowdown in Chinese growth may not be a bad thing as the economy has been growing too fast on credit, said Paul Gruenwald, Asia Pacific chief economist at S&P Global Ratings.

“We kind of want them to slow down,” he told CNBC.

In the medium term, real growth needs to move down to 5.5 percent for credit expansion to be in line with GDP growth, Gruenwald added.

Officially, China is targeting around 6.5 percent economic growth in 2017, Premier Li Keqiang said earlier this year.

China’s manufacturing sector has been posting solid growth thanks to domestic infrastructure spending and a recovery in exports. That has mitigated some concerns about slowing growth and high debt levels that could derail the world’s second-largest economy.

Another set of PMI readings will be published on Wednesday as Caixin/Markit release their numbers.

Compared with the official PMI, the Caixin/Markit survey tends to focus more on small- and mid-sized manufacturers.

Source: CNBC