BNY's Wee Khoon Chong highlights that China's factory slump is easing, with manufacturing PMI edging higher and export orders returning to expansion, while services and construction remain under pressure.
The latest official data shows China's manufacturing activity improved in August, supported by stronger demand, but remained in contraction for a second consecutive month. The NBS Non-Manufacturing PMI held at 49.0 in August, unchanged from July and below expectations of 49.5, signaling continued contraction in services and construction. The construction index edged down to 46.9 from 47.0, while the business activity index for services remained subdued.
🏗️ Property Reform Shakes Markets
Market sentiment was pressured by a sharp decline in property stocks after China introduced measures to reduce developers' reliance on funds raised through housing presales. The proposed overhaul threatens to disrupt a financing model that has long been central to China's property market. Presales still represented about 75% of new-home sales at the end of 2025, meaning changes to the system could have significant consequences for developers and housing construction.
• An index tracking mainland-listed real estate companies fell 1.4%
• Hong Kong's Hang Seng Mainland Properties Index dropped nearly 6%
Analysts suggest the changes could intensify pressure on private developers, which have already faced severe liquidity constraints following the property sector's prolonged downturn. Banks may also become more inclined to favor state-owned developers, potentially widening the financing gap between state-backed and private companies.
🏦 Silver Lining: Banks Offer Support
Chinese banking stocks provided a counterweight to weakness elsewhere in the market. The country's largest banks reported their strongest first-half profit performance since the height of the property crisis, helping lift investor sentiment toward the sector. The stronger bank earnings offered some reassurance about the resilience of major financial institutions despite continued stress in the property market and uneven economic growth.
📈 What's Next for China?
According to BNY's analysis, the Chinese government has implemented aggressive market stabilization measures over the past months, with the Politburo changing its monetary policy to "moderately loose" from "prudent" — a stance not seen since 2011. The government also called for a "more proactive" fiscal policy, emphasizing "extraordinary" countercyclical adjustment measures to stabilize property and stock markets.
BNY notes that while sentiment and confidence data since the easing measures have been mixed, there are signs of stabilization. China's November PMI shifted into expansionary territory, and the government remains confident that growth will be around 5% going into 2025. There is also the announced CNY 10tn debt package in the form of special government bonds.
Overall, Monday's market moves reflected growing concerns over China's uneven recovery, with weak services and construction activity, continued property-sector stress, and uncertainty over the outlook for policy support weighing on sentiment.