Beijing, November 1

Activity in China’s manufacturing sector unexpectedly contracted in October for a third straight month, an official survey showed today, fuelling fears the economy may still be losing momentum in fourth quarter despite a raft of stimulus measures.

Adding to those concerns, China’s services sector, which has been one of few bright spots in the economy, also showed signs of cooling last month, expanding at its slowest pace in nearly seven years.

As the first major indicators of business conditions in China released each month, the PMIs reinforced the view that the economy remains in the midst of a gradual slowdown which will require Beijing to roll out more support in coming months.

“While the PMI has stabilised, it is too early to confirm a bottoming out,” economists at ANZ Bank said in a note.

“As deflation risks intensify, a further RRR cut before end of this year is still possible,” ANZ said, referring to reducing the amount of reserves that banks must hold in order to free up more funds for new loans.

The official Purchasing Managers’ Index (PMI) was at 49.8 in October, the same pace as in the previous month and lagging market expectations of 50, according to the National Bureau of Statistics (NBS). A reading below 50 points suggests a contraction.

New export orders contracted for a 13th straight month, though the sub-index for new orders — a proxy for both domestic and foreign demand — edged up marginally to 50.3, compared with September’s 50.2.

Faced with persistently weak demand, factory owners continued to lay off workers and at a slightly faster pace than in September.

“Because of the recent weak recovery in the global economy and downward pressure in the domestic economy, manufacturers still face a severe import and export situation,” Zhao Qinghe, a senior statistician at the NBS said in a statement accompanying the data.

Major Chinese construction machinery maker Sany Heavy Industry Co Ltd said on Friday it swung to a loss in the third quarter, affected by a glut of unsold equipment.

As for the services sector, whose growth has helped offset persistent weakness in manufacturing, the official non-manufacturing PMI fell to 53.1 in October from September’s 53.4.