China's factory activity contracted in October for the third time in four months, as the official manufacturing purchasing managers' index fell to 49.3 from 50.1 in September, data from the National Bureau of Statistics showed Saturday.

The reading, published at 9:30 a.m. with the China Federation of Logistics and Purchasing, dropped back below the 50 mark that separates growth from contraction and missed the 50.0 forecast in a Reuters poll. It was the weakest result since July, when the index stood at 49.2.

For investors in Asia, the trade gauges inside the survey carry the clearest signal. The new export orders index fell to 48.7 from 50.0, and the imports index slid to 47.0 from 49.2, its lowest level since February. A lower imports reading means Chinese manufacturers bought less from abroad in October, which points to softer orders for the parts and raw materials regional suppliers sell into China.

The rest of the economy lost momentum too. The non-manufacturing PMI, which covers services and construction, eased to 49.7 from 50.2. The composite output index, which combines factories and non-manufacturers, fell a full point to 49.7 from 50.7, according to the NBS.

Why China's Manufacturing PMI Fell

Huo Lihui, chief statistician at the NBS Service Survey Center, attributed the decline to demand that was pulled forward before the National Day holiday in the first week of October and to a complex, shifting international environment. Reuters reported that overseas Christmas orders, which had been brought forward into September, cooled in October, and that consumer spending faded once the holiday ended.

Supply and demand both weakened. The production sub-index fell 1.9 points to 49.8, and new orders dropped 1.1 points to 49.4, their first contraction in three months. The index for purchasing volumes fell to 48.9 from 51.0, and the gauge of order backlogs sank to 44.1 from 46.0.

Company size mattered. Large manufacturers stayed in expansion at 50.2, down 0.4 point, while the indexes for medium and small firms fell to 48.4 and 47.5, respectively.

Advanced industries held up. The high-tech manufacturing PMI stood at 51.3 and the equipment manufacturing PMI at 50.6, the NBS said. Production and new orders at railway, shipbuilding and aerospace equipment makers, and at computer, communications and electronics producers, were all at 53 or higher. The PMI for consumer goods makers fell 1.9 points to 48.8, and the gauge for energy-intensive industries slipped 0.7 point to 47.3.

Price pressure cooled from a high level. The input price index fell 4 points to 56.8 and the output price index dropped 2.3 points to 51.7, both still above 50. Huo tied the easing to recent declines in the prices of some nonferrous metals and other commodities. Both price gauges for petroleum and coal processing, and for chemical fiber, rubber and plastic products, stayed above 60 as international crude prices kept climbing, Huo said.

Manufacturers did not turn gloomy. The index of expected production and business activity was 53.4, down from 53.8.

Services Stall at 50 as Construction Orders Slump

The services index held exactly at the 50 line, down 0.2 point. Huo said rail transport, hotels, and culture, sports and entertainment businesses picked up on holiday travel, while a sharp drop in the financial sector's index was the main reason services softened. The NBS said capital market services, insurance and real estate were all below 50.

Construction was weaker. Its activity index fell 2.3 points to 48.0, and its new orders gauge plunged 5.7 points to 40.0. Economists had expected the non-manufacturing PMI to come in at 50.5, according to Trading Economics.

What China's Slowdown Means for Asia

The sector detail points to softer demand for industrial materials. Textile makers, producers of non-metallic mineral products and nonferrous metal smelters all reported production and new orders below 50, the NBS said. Building and infrastructure accounted for about 41% of China's steel consumption in 2023, according to a BigMint analysis published by trade outlet SteelOrbis, so weaker construction tends to mean less demand for steel and for iron ore, its main raw material.

The split between technology suppliers and older industries is also visible in earnings. Reuters cited Zhongji Innolight, a maker of high-speed optical modules for AI data centers, which nearly tripled its third-quarter net profit, and custom furniture maker Oppein Home, whose quarterly net profit plunged 80%.

That leaves policy as the open question. “Insufficient demand is increasing downward pressure on the economy,” said Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, according to Reuters. Zhang urged policymakers to step up support as soon as possible. Reuters reported, however, that the economy is expected to meet Beijing's 4.5% to 5% growth target without further stimulus after it grew 4.5% in the third quarter, up from 4.3% in the second.

Investors get a second read on Monday. The private RatingDog China manufacturing PMI, compiled by S&P Global, is due Nov. 2 at 9:45 a.m. Hong Kong time, according to S&P Global's release calendar. Manufacturing PMIs for Japan, South Korea, Taiwan, Indonesia, Malaysia, Thailand and Vietnam are scheduled at 8:30 a.m. that day. The private gauge rose to 52.1 in September, according to Trading Economics, two points above the official September reading.