China’s economy stabilises as factory activity records growth

China’s factory activity expanded for the first time in six months in September, an official survey showed on Saturday, adding to a run of indicators suggesting the world’s second-largest economy has begun to bottom out.

The purchasing managers’ index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, edging above the 50-point level demarcating contraction in activity from expansion. The reading beat a forecast of 50.0.

The PMI, the first official statistics for September, adds to signs of stabilisation in the economy, which had sagged after an initial burst of momentum early in the year when China’s ultra-restrictive COVID-19 policies were lifted.

Preliminary signs of improvement had emerged in August, with factory output and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July’s 6.7% decline.

“The manufacturing PMI, plus the good industrial profit figures, suggest that the economy is gradually bottoming out,” said Zhou Hao, chief economist at Guotai Junan International.

China’s non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, also rose, coming in at 51.7 versus August’s 51.0.

The composite PMI, including manufacturing and non-manufacturing activity, climbed to 52.0 in September from 51.3.

Near-term data on the radar of economists include consumer spending for the longest public holiday this year. “Golden Week” kicked off on Friday with the Mid-Autumn Festival, which will be followed by the National Day break through Oct. 6.

Passenger travel by rail on Friday reached 20 million trips, a single-day record, state media reported on Saturday, in a bullish start to what authorities had forecast to be “the most popular Golden Week in history”.

More stable economic indicators will be welcomed by policymakers as they continue to grapple with a property sector debt crisis that has rattled global markets. The authorities have announced a series of measures to shore up the property market, including cutting mortgage rates, although the sector is far from being out of the woods.

New home prices fell the fastest in 10 months in August and property investment declined for an 18th straight month.

China Evergrande Group, the world’s most indebted property developer with more than $300 billion in liabilities, said on Thursday its founder was being investigated over suspected “illegal crimes”.

The Asian Development Bank last week trimmed its 2023 economic growth forecast for China to 4.9% from a July forecast of 5.0% due to the weakness in the property sector. Analysts say more policy support will be needed to ensure China’s economy can hit the government’s growth target of about 5% this year.

“China’s economy stabilised partly driven by the loosening of property sector policies,” said Zhiwei Zhang, chief economist of Pinpoint Asset Management.

“The key issue going forward is whether fiscal policy will become more supportive. I think it will, but timing-wise the change of fiscal policy stance may happen next year instead of this year.”

Evergrande yacht: China Evergrande Group sold its luxury superyacht for about $32 million earlier this year, said two sources, further shrinking the developer’s offshore assets as its cash crunch worsened and it scrambled to pull together a debt revamp plan.

Evergrande’s offshore bondholders are expected to sharpen their focus on offshore assets as the developer’s debt restructuring plan flounders with the founder now being investigated over suspected “illegal crimes”.

The debt restructuring process was further complicated this week after Evergrande said it was unable to issue new debt due to an investigation into its main China unit. Analysts have said delays to the debt restructuring raise the risk of the company being liquidated.

Evergrande sold the 60-metre (197 foot) superyacht Event for 30 million euros ($32 million) as part of a process to sell down non-core assets, said the two sources with knowledge of the matter, declining to be named as the information is not public yet.

A third source with knowledge of the matter confirmed the sale of the yacht.

A spokesperson for Evergrande did not immediately respond to Reuters request for comment.

With Evergrande founder and chairman Hui Ka Yan now under investigation, analysts and investors are questioning who will run the company’s operations and what will happen to the offshore debt restructuring plan.

Evergrande is the world’s most indebted developer with more than $300 billion in total liabilities. Its financial woes, which first became public in 2021, has weighed on the Chinese economy as well as the global markets.

After defaulting on its dollar bond in late 2021, Evergrande has been in the process of seeking creditors’ approval for its proposals to restructure offshore debt worth $31.7 billion, which includes bonds, collateral, and repurchase obligations.