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September 30, 2015

China's factories are still struggling

China's factories continued to sputter in September, suggesting continued pain for the world's second-largest economy.

The government's official purchasing managers' index hit 49.8 in September, according to the National Bureau of Statistics, up slightly from 49.7 the previous month. Any number below 50 represents a deceleration in the manufacturing sector.

A separate survey conducted by Chinese media group Caixin and Markit showed manufacturing PMI dropped to 47.2 in September, a slight decline from 47.3 in August. The index has now been below 50 for seven consecutive months.

The official government manufacturing gauge is heavily weighted toward large enterprises, while the Caixin survey taps a smaller sample size and places greater emphasis on smaller firms.

Poor factory activity is one indicator that the overall health of China's economy is suffering. In a bid to support growth, policymakers have already cut interest rates, and reduced the amount of cash banks are required to keep in reserve. The government has made more funding available for infrastructure, and accelerated some projects.

Julian Evans-Pritchard at Capital Economics said the uptick in the government's official PMI indicates that Beijing's policy response "is increasingly gaining traction."

"The two PMIs taken together still point to subdued activity in the manufacturing sector," said Evans-Pritchard. "But it's worth pointing out that there have already been some signs of improvement in the hard data."

President Xi Jinping sought to reassure investors last week, saying that China's economy is operating "within the proper range," and that slower Chinese growth should be expected given the "complex" and "volatile" global economic environment.

Markets in China were closed Thursday for a national holiday. Elsewhere in Asia, stocks posted mild gains.

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