China's manufacturing sector returned to growth in September with the official manufacturing purchasing managers' index rising to 50.1 from 49.8 in August, marking the first expansion since June and meeting economist forecasts. According to The Economic Times, the improvement ended two consecutive months of contraction and was reflected in a private-sector survey with the RatingDog manufacturing PMI rising to 52.1 in September, its highest level in five months. The recovery was supported by strong production and AI-linked demand, though China's smaller manufacturers continued to operate below the expansion threshold with the official PMI for medium-sized companies at 49.7 and small firms at 48.9. The construction index climbed to 50.3 while the services index increased to 50.2, indicating that activity outside manufacturing also recovered during the month, although the employment sub-index remained below 50, pointing to continued weakness in hiring.
Chinese blue-chip stocks remained near one-year lows on Wednesday as Beijing's latest measures to support credit, mortgages and investment failed to revive investor confidence, according to Reuters. The CSI 300 index rose 0.2% in morning trading but remained close to a one-year low reached earlier this week, with the index on course to fall about 13% this quarter, which would be its biggest quarterly decline since the COVID-19 lockdowns in 2022. The Shanghai Composite gained 0.3% by the lunch break and was heading for a quarterly decline of about 6.2%, also its steepest fall in four years. Market participants viewed the measures as capable of helping economic growth move toward the lower end of Beijing's national targets, but insufficient to significantly improve confidence or change investor sentiment. The People's Bank of China cut its one-year pledged supplementary lending rate by 25 basis points to 1.5%, while authorities also increased relending quotas for technology companies and small businesses and introduced mortgage subsidies for eligible first-time buyers.
The CSI Semiconductor Index fell more than 2% and was on course for a decline of about 32% since June, while the CSI AI Index dropped 1.2% and was heading for a quarterly loss of roughly 25%, according to Reuters. However, technology and semiconductor-related stocks could benefit from continued investment linked to artificial intelligence, as the AI boom supported industrial production and production strengthens, though demand remains uneven. The retreat in technology shares has removed an important source of support for Chinese equities, adding to broader concerns about the sustainability of the market's earlier rally. This development reinforced concerns about China's semiconductor sector, which has been facing significant pressure from both domestic competition and potential foreign technology access. The combined turnover on the Shanghai and Shenzhen stock exchanges fell to 1.41 trillion yuan on Tuesday, the lowest level since July 2025.
Chinese property developers led gains after a State Council meeting pledged measures to stabilise the housing market, with Vanke shares climbing nearly 8% to become one of the strongest performers in the mainland market. According to CNBC TV18, a Bloomberg index of developers climbed more than 4% as of mid-day break, on track for its biggest gain in more than a month, as investors reacted to Beijing's latest messaging. However, the housing market has remained a major drag on China's economy, with weak property demand and subdued household confidence limiting the strength of any broader recovery. Investors continued to question whether the latest mortgage support measures would be sufficient to generate a meaningful turnaround in housing and consumption. Local authorities will be allowed to tap unused bond quota left from previous years, with the central bank's relending allowance increased to encourage loans to sectors including technology, agriculture and small businesses.
With domestic demand still weak, property markets under pressure and technology stocks retreating, investors remain focused on whether Beijing will introduce stronger measures to provide a more durable boost to growth and market confidence, according to Reuters. The relatively modest rise in the official PMI means the data do not by themselves signal a broad-based economic recovery, as weak property activity, subdued household demand, soft employment indicators and trade uncertainty remain important risks for equities. Reuters reported that policymakers face pressure to provide further assistance as weak retail spending, investment and the prolonged property downturn continue to weigh on the economy. China has increasingly relied on manufacturing and exports to support growth as domestic demand remains weak, with the country's trade surplus on track to exceed $1 trillion for a second consecutive year. US-China trade tensions remain a risk, as China and the United States agreed this week to pursue tariff reductions on $60 billion worth of goods traded between the two countries, though several important products were excluded from the arrangement.
