(Yicai) Nov. 1 -- Activity in China’s manufacturing sector returned to contraction last month after staying in positive territory for two straight months because the weak external demand caused manufacturers to cut supplies, according to a widely watched private survey.

The Caixin manufacturing purchasing managers’ index came in at 49.5 in October, down 1.1 point from the previous month, data released by financial media group Caixin showed today. The figure was 51 in August. A reading below 50 indicates contraction.

The data is consistent with the official manufacturing PMI, published yesterday by the National Bureau of Statistics, which logged a 0.7 point decline to 49.5.

The economy showed signs of bottoming out in the third quarter, despite the foundation for the economic recovery is still not solid, said Wang Zhe, a senior economist at Caixin Insight Group. The recent decision of the central government to issue additional CNY1 trillion (USD136.6 billion) special government bonds will help stabilize the economy, but the transmission effect on residents’ income, employment, and market expectations remains to be seen, Wang noted.

The production sub-index fell below the threshold of 50 because manufacturers had to reduce their supplies, as the weak global economy and high prices led to sales setbacks in overseas markets.

The manufacturing new orders sub-index remained in the expansion territory for the third straight month in October, but the demand expansion slowed down. Meanwhile, the new export orders sub-index stayed below 50.

The manufacturing employment sub-index came in under the expansion mark for the seventh time in the past eight months in October because manufacturers continued to reduce their hiring efforts as market prosperity weakened and their need to cut costs increased.

The manufacturing production and operation expectation sub-index fell but remained in expansion territory last month. Some manufacturing companies are optimistic because of new product launches, the development of new export markets, and the expected economic boom, while others are concerned about weak external demand and poor market conditions.

Editor: Futura Costaglione