China Factory Activity Accelerates in August

(Beijing) — Manufacturing activity in China expanded at a faster rate in August than in the previous month on growing demand that helped fuel inflation, official figures showed on Thursday.

The official manufacturing purchasing managers index (PMI) rose to 51.7 in August from 51.4 in July, according to the National Bureau of Statistics (NBS). The index is closely watched as a barometer of business sentiment in the nation’s economically vital manufacturing sector.

August marked the 13th consecutive month in which the index topped 50, indicating business expansion. A reading below 50 points to contraction. August’s figure beat a median forecast of 51.3 by economists responding to a Bloomberg poll. 

NBS analyst Zhao Qinghe attributed the pickup of last month’s manufacturing PMI to factors including “continued improvement in both supply and demand” and “accelerating imports driven by the recovering domestic market.”

The subindex of imports strengthened to 51.4, the highest since March 2012, as the output and new orders sub-indexes both rose from July. However, foreign demand softened in August, with the subindex of exports declining to the lowest in seven months.

Beijing-mandated excess capacity cuts and strengthened enforcement of environmental protection rules, which slowed production in some areas, resulted in a supply shortage, pushing up prices of raw materials such as coal, ferrous and nonferrous metals, analysts said.

NBS figures showed input costs and output prices in the manufacturing sector in August both increased at their quickest pace seen this year.

The better-than-expected manufacturing PMI reading for August came after the world’s second-largest economy posted disappointing figures pointing to slowing growth in factory output, investment and consumption at the start of the third quarter.

And some economists have remained cautious about the sustainability of the manufacturing warmup.

Julian Evans-Pritchard, an economist with research firm Capital Economics, suspected the uptick in August’s manufacturing PMI was mainly supported by the rapid production of industrial metals that was encouraged by higher prices.

“Looking ahead, if we are right to believe that tighter policy will continue to weigh on investment spending in the coming quarters, then we doubt that the current pace of industrial output growth can be sustained for long,” he wrote in a note.

He added that a fall in the nonmanufacturing PMI last month pointed to a slowdown in the rest of economy.

The official nonmanufacturing PMI, which covers the nation’s service and construction sectors, declined to 53.4 in August from 54.5 in July. It was the lowest reading since May 2016. NBS’ Zhao blamed adverse weather for the slowdown in construction.

The independent Caixin China General Manufacturing PMI is scheduled to be released on Friday. The Caixin China General Services Business Activity Index is set to be published on Tuesday.

Contact reporter Pan Che (chepan@caixin.com)