FX.co ★ China's faltering economy needs more policy support

Analysts are still debating the state of the Chinese economy. Some experts claim that its economic growth is steadily slowing down, while others are confident of a record downturn. However, both agree that the world's second largest economy is now in a fragile position. The country is experiencing serious challenges, with activity in its most important sectors losing momentum.

According to the World Bank, Asia-Pacific countries are facing the worst economic prospects since the late 1960s, but China stands out as being the biggest economy in the region. China's hardships could affect not only the country and the region but also most of the world’s economies. The situation is exacerbated by external factors, including US protectionist trade measures and rising debt levels among countries in Asia.

"The surprise drop in the Caixin manufacturing PMI in September signals parts of China's economy remain fragile. <...> The Caixin setback suggests private businesses and exporters are still under heavy pressure," economist Eric Zhu said.

Notably, China's factory activity expanded for the first time in six months in September. However, its further dynamics will largely depend on the local authorities’ measures to stimulate domestic demand for products and stabilize the labor market. After all, the country’s economy is also buffeted by chronic headwinds in the services sector. China’s services purchasing managers' index came in at 50.2 points in September, the lowest reading over the past year. The PMI for the country’s manufacturing sector was also just above the 50-point threshold separating expansion from contraction.