CICC comments on October PMI data: PMI decline mainly affected by seasonal factors; drop exceeding average reflects marginal weakening of demand.

CICC released a research report stating that in October, the Caixin manufacturing PMI fell by 0.8 percentage points month-on-month to 49.3%, below market expectations; the October non-manufacturing business activity index fell by 0.5 percentage points month-on-month to 49.7%; the composite PMI fell by 1.0 percentage point month-on-month to 49.7%, all returning to contraction territory. The decline in the manufacturing PMI was mainly affected by seasonal factors, but the drop exceeded the average for the same period over the past five years, reflecting a marginal weakening of demand. CICC's main views are as follows: In October, the Caixin manufacturing PMI fell by 0.8 percentage points month-on-month to 49.3%, below market expectations (Reuters median forecast: 50.0%); the October non-manufacturing business activity index fell by 0.5 percentage points month-on-month to 49.7%; the composite PMI fell by 1.0 percentage point month-on-month to 49.7%, all returning to contraction territory. The decline in the manufacturing PMI was mainly affected by seasonal factors, but the drop exceeded the average for the same period over the past five years, reflecting a marginal weakening of demand. Industry divergence continued, and the month-on-month increase in prices slowed. Infrastructure provided marginal support, but construction as a whole declined. Holiday travel consumption supported the services sector, but financial industry sentiment declined. We believe that the implementation of fiscal policy has accelerated recently, with the use of the local government debt balance limit arrangement and the completion of the disbursement of the RMB800 billion new policy-based financial instrument, providing marginal support for infrastructure. However, construction as a whole remains weak, and the focus of subsequent policy may be on accelerating the linkage between funds and projects to drive funds to form physical as soon as possible. Seasonal decline was the main factor, with weakening demand further dragging it down. An important reason for the month-on-month rise in the September 2026 PMI was that some enterprises concentrated production scheduling and deliveries at quarter-end. As the quarter-end effect faded, the October 2026 PMI fell by 0.8 percentage points month-on-month. Seasonally, the average month-on-month decline in the October PMI over the past five years was 0.5 percentage points, and the month-on-month decline in October 2026 exceeded the seasonal average. In addition to seasonal factors, we believe that marginally weakening demand put further pressure on the October PMI. The new orders and production sub-indices fell by 1.1 and 1.9 percentage points month-on-month to 49.4% and 49.8%, respectively. Although the month-on-month decline in new orders was smaller than that in production, on the one hand, the absolute level of the demand sub-index was lower than that of production, indicating a greater degree of demand contraction in October. New export orders fell by 1.3 percentage points month-on-month to 48.7%, consistent with the decline in the preliminary manufacturing PMIs of Japan and the euro area in October. On the other hand, the October backlog of orders fell by 1.9 percentage points month-on-month to 44.1%, and inventory levels were also weak, with finished goods and raw material inventories at 47.5% and 48.4%, respectively (47.6% and 48.4% in September). Industry divergence continued. Although PMIs across major industry categories all declined, in absolute terms, the PMIs for high-tech and equipment manufacturing were 51.3% and 50.6%, respectively (52.5% and 51.0% in September), still in expansion territory; while the PMIs for consumer goods and high energy-consuming industries were 48.8% and 47.3%, respectively (50.7% and 48.0% in September). Industry divergence was broadly consistent with the divergence in demand structure: first, external demand was relatively stronger than domestic demand; second, equipment investment was relatively stronger than construction and installation investment. By enterprise size, the PMIs of large, medium, and small enterprises all fell month-on-month in October, but in absolute terms, large enterprises remained stronger than small and medium-sized enterprises. Their PMIs were 50.2%, 48.4%, and 47.5%, respectively (50.6%, 49.7%, and 48.9% in September). The month-on-month increase in prices slowed. Although the Middle East conflict pushed crude oil prices further up in October, prices of other bulk commodities generally fell, so overall the month-on-month increase in manufacturing prices slowed. In October, the purchase prices of raw materials and ex-factory prices fell by 4.0 and 2.3 percentage points month-on-month to 56.8% and 51.7%, respectively. Constrained by demand, the trend of upstream prices squeezing downstream profit margins continued. Infrastructure provided marginal support, but construction as a whole declined. In October, the construction business activity index fell by 2.3 percentage points month-on-month to 48.0%, returning to contraction territory. The implementation of fiscal policy has accelerated, and the 2026 new policy-based financial instrument has completed disbursement [1], both providing marginal support for infrastructure. The China Logistics Information Center [2] stated: "Civil engineering construction remained relatively stable, with the business activity index rising from the previous month, but still below 50%." Therefore, real estate and other construction sectors may have increased their drag on construction as a whole. Holiday travel consumption supported the services sector, but financial industry sentiment declined. In October, the services business activity index fell by 0.2 percentage points month-on-month to 50.0%, with the absolute level still at a relatively weak level for the same period in history. By industry, the services sector was mainly supported by holiday travel consumption. The National Bureau of Statistics [3] stated: "Business activity indices for railway transportation, accommodation, culture, sports, and entertainment and other industries related to 'National Day' holiday travel consumption rebounded significantly, and all were in expansion territory, with market activity increasing." Meanwhile, partly affected by financial market volatility, financial industry sentiment declined. The National Bureau of Statistics stated: "Only the financial industry's business activity index declined, and by a relatively large margin, which was also the main reason for the slight decline in services sector sentiment this month."