September's manufacturing PMI moved back above the boom-or-bust line, while both the services and construction PMIs rebounded by more than their seasonal norms, pointing to a repair in economic momentum during the month, according to a research report from Guosheng Securities Inc. (SHE: 002670). Combined with the package of policies introduced on September 29, including interest subsidies and rate cuts that help stabilize real estate, investment, and expectations, the full-year "protect 4.5%" growth target should be achievable.

Looking ahead, the short-term focus of policy will remain on implementation and on "fully and effectively using" existing measures, including accelerating bond issuance and the pace of fiscal spending and bringing interest subsidy policies into effect as soon as possible. More incremental policies should also follow, with close attention to the "effective use of local government debt carryover quotas" explicitly noted at the September 28 State Council executive meeting (carryover quotas totaled about 1.16 trillion yuan as of the end of 2025), as well as to policies aimed at boosting consumption. The main views of Guosheng Securities Inc. (SHE: 002670) are as follows.

Manufacturing PMI extends its recovery and returns to expansion

1. The September manufacturing PMI continued to recover and moved back into expansion territory, while non-manufacturing activity rose by more than its seasonal norm. The September manufacturing PMI came in at 50.1%, up 0.3 percentage points month-on-month, slightly weaker than the seasonal pattern (the median month-on-month change in the September manufacturing PMI from 2016 to 2025 was 0.5 percentage points), returning to expansion. The September non-manufacturing PMI was 50.2%, up 1.2 percentage points month-on-month, stronger than the seasonal pattern (the median month-on-month change in the September non-manufacturing PMI from 2016 to 2025 was 0.4 percentage points), also returning to expansion. Within this, the services PMI rose 0.9 percentage points and the construction PMI jumped 3.4 percentage points. The September composite PMI output index rose 1.2 percentage points month-on-month to 50.7%. Some regions stepped up travel subsidies in September, and transport and tourism demand was released early ahead of the Mid-Autumn Festival and National Day holidays, driving the services sector to rebound by more than its seasonal norm. As the impact of extreme weather weakened, special bond issuance accelerated, and policy-based financial instruments were gradually implemented, construction activity improved by more than its seasonal norm.

Five signals to watch across supply and demand, trade, prices, inventories, and employment

2. At the sub-index level, attention should be paid to five major signals covering supply and demand, trade, prices, inventories, and employment. 1) Supply improved markedly while demand edged lower, extending the pattern of supply outpacing demand. On the supply side, the September PMI production index was 51.7%, up 1.3 percentage points from the previous month and stronger than the seasonal pattern (the median month-on-month change in the September manufacturing PMI production index from 2016 to 2025 was 0.6 percentage points), remaining in expansion. Based on high-frequency data, the operating rate of semi-steel tires for automobiles fell in September, while the PTA operating rate rose sharply. On the demand side, the September PMI new orders index fell 0.1 percentage points to 50.5%, still expanding, with the new export orders index down 0.1 percentage points, pointing to a clear improvement in supply and a marginal decline in demand, with supply continuing to outpace demand. By industry, the agricultural and sideline food processing and pharmaceutical sectors saw high levels of activity on both the supply and demand sides, while chemical raw materials and chemical products, ferrous metal smelting and rolling processing, and other industries showed relatively weak supply and demand conditions. In September, the PMIs for high-tech manufacturing, equipment manufacturing, consumer goods, and basic raw materials were 52.5%, 51.0%, 50.7%, and 48.0%, respectively, changing by -0.4, -0.4, +1.7, and +0.1 percentage points month-on-month. The high-tech manufacturing PMI has now stayed above the boom-or-bust line for 20 consecutive months, while consumer goods manufacturing rebounded notably and returned to expansion territory.

New export orders slip but exports are expected to remain strong

2) The new export orders index declined slightly, but based on South Korea's exports in the first 20 days of September and domestic port throughput data, export growth is expected to remain strong in September. On the export side, the September new export orders index fell 0.1 percentage points to 50.0%, underperforming the seasonal pattern (the median month-on-month change in the September manufacturing PMI new export orders index from 2016 to 2025 was 0.5 percentage points). Overall, export orders fell in July due to typhoon impacts, recovered early in August, and edged lower in September, with external demand remaining resilient on the whole. Based on high-frequency data, South Korea's exports in the first 20 days of September rose 78.3% year-on-year (previous value: 56.0%), and combined with a pickup in the year-on-year growth of domestic port throughput, export growth is expected to remain strong in September. On the import side, the September import index rose 0.6 percentage points to 49.2%, still in contraction territory.

Price indices climb on geopolitical tensions, PPI seen rising again

3) As the U.S.-Iran situation fluctuated, price indices rose markedly, and September PPI is expected to climb again while finished goods inventories declined. On the price side, the September main raw material purchase price index rose 4.2 percentage points to 60.8%, and the ex-factory price index rose 3.6 percentage points to 54.0%, marking consecutive sharp increases. Repeated swings in the U.S.-Iran situation pushed oil prices higher again, and combined with tight inventories and notably higher prices of downstream chemicals, the year-on-year growth rate of September PPI is expected to climb again. On the inventory side, the September PMI raw material inventory index rose 0.1 percentage points to 48.2%, finished goods inventory fell 0.8 percentage points to 47.6%, and purchases rose 0.5 percentage points to 51.0%, pointing to improved demand driving a recovery in production and purchasing willingness, a pickup in finished goods sales, and a decline in inventories.

Small and medium-sized firms improve as construction and services hiring picks up

4) Business conditions improved for small and medium-sized enterprises, while hiring in construction and services also improved. In September, the PMIs for large, medium, and small enterprises changed by 0, 0.3, and 1 percentage points, respectively, with large enterprises remaining in expansion and small and medium-sized enterprises improving notably. In September, the employment indices for manufacturing, services, and construction changed by -0.3, 0.4, and 1.3 percentage points month-on-month, respectively, with hiring improving in construction and services but still in contraction territory.

Services and construction outperform seasonally

5) Services and construction activity rose by more than their seasonal norms. On the services side, the September services PMI rose 0.9 percentage points to 50.2%, better than the seasonal pattern (the median month-on-month change in the September services PMI from 2016 to 2025 was 0.2 percentage points). Some regions stepped up travel subsidies in September, and transport and tourism demand was released early ahead of the Mid-Autumn Festival and National Day holidays, driving services to rebound by more than its seasonal norm. By industry, telecommunications, radio and television, and satellite transmission services, monetary and financial services, and insurance showed relatively strong activity, while capital market services and real estate showed relatively weak activity. On the construction side, the September construction PMI rose 3.4 percentage points to 50.3%, stronger than the seasonal pattern (the median month-on-month change in the September construction PMI from 2016 to 2025 was 1.3 percentage points), returning to expansion, mainly because the impact of extreme weather weakened, special bond issuance accelerated, and policy-based financial instruments were gradually implemented. On September 29, the PSL rate was cut by 0.25 percentage points, and construction of the "six networks" was included in the scope of support, with policy stepped up to stabilize infrastructure. In the short term, continued attention should be paid to the implementation effects of incremental real estate policies, the pace of government bond issuance, the use of policy-based financial instruments, and progress in building the "six networks."

Overall momentum is repairing but domestic demand remains weak

3. Overall, the September manufacturing PMI continued to recover and returned to expansion, while services and construction rebounded by more than their seasonal norms, with economic momentum repairing somewhat. In manufacturing, tight inventories partly constrained downstream chemical production, affecting the strength of the manufacturing PMI rebound. In non-manufacturing, as travel subsidies were stepped up, special bond issuance accelerated, and policy-based financial instruments were gradually implemented, both services and construction improved by more than their seasonal norms. Based on high-frequency data, property sales across 30 cities continued to decline year-on-year in September, while South Korea's exports in the first 20 days and China's port throughput growth picked up, extending the pattern of "strong external demand, weak domestic demand," with insufficient domestic demand still a prominent issue.

Policy focus stays on implementation and existing measures

4. Looking ahead, pressure to achieve the full-year growth target is not great, and the short-term focus of policy should be on strengthening implementation and "fully and effectively using" existing policies, while incremental policies will also be "planned in a timely manner." Overall, although the economy slowed more rapidly in July-August, given the repair in economic momentum in September and the package of policies announced on September 29 that help stabilize real estate, investment, and expectations, the full-year "protect 4.5%" target should be achievable. The short-term focus of policy remains on implementation and on "fully and effectively using" existing measures, including accelerating bond issuance and the pace of fiscal spending and bringing interest subsidy policies into effect as soon as possible. More incremental policies should also follow, with close attention to the "effective use of local government debt carryover quotas" explicitly noted at the September 28 State Council executive meeting (carryover quotas totaled about 1.16 trillion yuan as of the end of 2025), as well as to possible consumption-boosting policies.