Manufacturing activity in China continued to decline in October, albeit at the weakest rate in four months – prompting hopes that government efforts to stimulate the economy through a series of interest rate reductions have started to take effect.

Data released this week shows the preliminary Caixin China manufacturing purchasing managers' index (PMI) rose to 48.3 in October, up from 47.2 in September. An index above 50 means activities expanded, while one under 50 signifies contraction.

The figures suggest operating conditions have now worsened in each of the past eight months, though the latest deterioration was the weakest since June.

Individual components of the index show both output and new export orders rose. “Widespread evidence of reduced raw material costs led to a further marked decline in cost burdens, which in turn were passed onto clients in the form of lower selling prices,” Caixin said.

It added that while total new business placed at Chinese goods producers declined for the fourth month in a row in October, the rate contraction eased since September’s recent record and was only modest.

“Softer domestic demand appeared to be a key factor weighing on overall new work as new export business increased for the first time since June, albeit marginally.”

As has been the case since July, Chinese manufacturers cut back on their purchasing activity in October, leading to a further modest fall in inventories of purchases.

Meanwhile, fewer sales led to an increase in stocks of finished goods for the third successive month, though the rate of accumulation weakened to a marginal pace.

Average cost burdens in China’s manufacturing sector fell for the fifteenth straight month in October. However, despite easing since September, the rate of deflation remained sharp.

“Panellists overwhelmingly linked lower input costs to reduced prices for a broad range of raw materials. As part of efforts to boost customer demand, companies generally passed on their savings in the form of lower selling prices. Moreover, the pace of discounting remained solid overall.”

Commenting on the data, Dr He Fan, chief economist at Caixin Insight Group said the slight upswing in the index “shows the manufacturing industry’s overall weakening has slowed down, indicating that previous stimulating measures have begun to take effect.

“Weak aggregate demand remained the biggest obstacle to economic growth, and the risk of deflation resulting from the continued fall in the prices of bulk commodities needs attention.”

The manufacturing PMI is compiled from replies to questionnaires sent to purchasing executives in over 420 manufacturing companies.

Separately, first details are starting to emerge on the Chinese government’s next five-year plan, which is due to be unveiled next March.

According to the official Xinhua News Agency, President Xi Jinping said the country will have to grow its economy growing by at least 6.5% over the next five years to achieve its goal of doubling 2010 gross domestic product and per capita income by 2020.